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Is refinancing always the best strategy?
The Mortgage Bankers Association encourages anyone who is considering refinancing to talk to a mortgage lender because a variety of products are available, and there is no one right answer for everyone.
The association's Web site offers several tips:
• In the past, homeowners have had to compare the fees associated with refinancing with the potential savings. Now, many mortgage companies offer low-cost or no-cost refinancing, typically at a little higher rate.
• Without low-cost or no-cost refinancing, the rule of thumb has been that it makes sense to refinance if the new rate is about 2 percentage points below the homeowner's current rate and if the owner plans to stay in the house for at least a couple of years. Otherwise, the refinancing fees may be greater than any savings from the lower interest rate.
• Some homeowners with fixed-rate mortgages may want to look into an adjustable-rate mortgage if they are planning to move in the next few years. These loans typically lock in interest rates that are even lower than the 15-year rate, but the rate moves up or down with the prevailing interest rate after a set amount of time.
• Those who took out adjustable-rate mortgages when the rates were high may want refinance and lock in current low rates with a fixed-rate mortgage.
• The low interest rates are also making 15-year mortgages attractive. It may be possible to refinance at a rate that will keep monthly payments about the same but allow the homeowner to pay off the mortgage years sooner.
• Some homeowners have seen the refinancing boom as an opportunity to get cash out of their house using a home equity loan or home equity line of credit. Those who have been in a house for a long time may have thousands of dollars of equity that they can tap for college tuition or other needs.
• There are many mortgage calculators available online. One at www.bankrate.com helps homeowners evaluate such factors as costs associated with refinancing, paying points, taking out a home equity loan and the length of the mortgage that is best for a particular situation.
• Lenders encourage anyone to talk to a mortgage lender. Every situation is different, and there are many products available.