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Home Refinancing – Part 1

This post will be the beginning of a series that examines whether or not it is wise for you to refinance your mortgage. 

First things first, why on earth would you want to do such a thing?  Well, there are several good reasons, and the best of which is to reduce your interest rate.  

If your mortgage is fixed rate, and more than six or seven years old, you are probably paying a lot more in interest on each payment than you could be.  The general idea is that if you can save two percent or more on your interest rate by refinancing, it is worth the time and effort to do so.   A lot of finance outfits now recommend that a reduction of 1% is enough of a cut to refinance, but obviously we shouldn’t go around blindly trusting guys that get don’t get paid if you don’t refinance with them.

But there are real reasons why that rule of thumb is dropping. As we have covered in this blog previously, the Federal Reserve has dropped interest rates to an all-time low.  They have also gone on record as stating that they plan on keeping rates unchanged for a long time to come. (hellllo, Japan!)  That means that a large part of the short term risk inherent in using variable rate mortgages (you pay a lower rate now, but if interest rate rise, so does your mortgage rate) has been removed.  

So that means you can save a lot on your interest rate if you refinance your mortgage now with a variable rate for 5 years.  It requires a little vigilence on your part because you and only you will be responsible for keeping track of when to pull the trigger.  Never expect your bank to look after your interests in this regard, because your gain is their loss.

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