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Home Refinancing Basics

Even though many new mortgages issued in recent years have been for homeowners refinancing their existing home loans, the decision to refinance isn’t necessarily the wisest strategy for everyone. The most important fact to consider is whether the savings from refinancing will compensate for the cost of the refinancing itself. If you don’t plan to stay in your home long enough to break even, refinancing could be a mistake.

For those homeowners who do decide to refinance, there are several other variables to consider. For example, although short-term mortgages typically offer lower interest rates than long-term mortgages, they usually involve higher monthly payments. On the other hand, they can result in significantly reduced interest costs over time. There is also a significant difference between a fixed-rate mortgage and an adjustable rate mortgage. The former allows a borrower to "lock in" a permanent rate, whereas the interest rate on the latter could go up in the future. In addition, some mortgages charge fees called "points" up front, but may offer lower interest rates in return. Always remember to check with your current lender about refinancing -- your existing relationship could allow you to realize big savings in terms of both time and money.

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