Refinancing
can be useful, but it does not make superior
financial sense for everyone. A common rule
of thumb is that refinancing becomes worth
your while if the current interest rate on
your mortgage is no less than 2 percentage
points higher than the existing market rate.
This figure is usually accepted as the safe
margin when balancing the costs of refinancing
a mortgage against the savings. There are
other considerations, too, such as how long
you plan to stay in the house. Most sources
say that it takes at least three years to
understand fully the savings from a lower
interest rate, given the costs of the refinancing.
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Homeowners should plan on paying an average
of 3 to 6 percent of the unsettled principal
in refinancing costs, plus any prepayment
penalties and the costs of paying off
any second mortgages that may exist.
One way of saving on some of these costs
is to ensure first with the lender who
holds your current mortgage. The lender
may be eager to waive some of them, especially
if the work relating to the mortgage closing
is still present. This could comprise
the fees for the title search, surveys,
inspections, and so on.
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