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» How to Refinance Your Home

How Did I Do It? > Personal Finance > How to Refinance Your Home
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My husband and I bought our home when we were both young and naïve. We didn’t know anything about fixed interest rates, or that we had the option to pay off our loans within a span of time that was more appropriate to our situation in life. Thus we ended up owing more money and paying off a monthly mortgage loan that ate up our salary. After ten years of paying the loan, we realized we haven’t even paid for half of what we owed in total. After talking to a trusted real estate broker and a loan agent, we now have more affordable interest rate compared to the value of our home and have been able to set up a retirement fund from our savings. You might be asking, how did you do it, with an incredulous look in your eye. But it’s quite simple really.

First things first, you will need a financial calculator, a trusted lending company offering home refinancing services, as well as a real estate broker. And here’s what you do:

Contact your real estate broker and ask about the current interest rates. If you can’t find one, then check out the Sunday newspaper. In the real estate section, you’ll find the fixed interest rates for mortgages.

The next decision you have to make could make or break your future. So take your time deciding which mortgage loan you want, fixed or adjustable. Most likely, your parents would have had a fixed mortgage loan, which meant that they are paying lower monthly payments for a fixed number of years. A lot of lending companies offer 30 Year Fixed Rate Mortgages; others have 15, 20, 25 and even 40 year term mortgages. One thing to remember is that the longer your mortgage term is, the total interest you’re paying will be higher. An adjustable mortgage loan has lower initial rates because both the lender and borrower are sharing the risk of higher rates in the future. This type of mortgage is better suited for homeowners who have an income that can support the unpredictability of the interest rates as well as those who are not looking for long term home ownership.

Once you decide which type of loan you want, you will have to compare the new interest rates to your current mortgage. The financial calculator will help you figure out what your new monthly payments will be by using the remaining amount of money you owe on your existing loan. After such, subtract the new monthly payment from your current monthly payment to see how much you can actually save. If you don’t see any significant difference, it’s better to stay on with your current loan. However, if you are saving a whole lot of money that you can spend elsewhere, take advantage of the loan.

Home refinancing will give you access to extra cash and at the same time lower your monthly mortgage payments. If you feel that you have been cheated or that you want a shorter mortgage term, this could be your chance to correct your past mistakes.

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