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The smart way to refinance your mortgage - CNN Underscored

February 22, 2021. Summarized by summa-bot.

Compression ratio: 23.5%. 2 min read.

Refinancing your mortgage is much easier if you know what to expect, and understanding the mortgage refinance process can help you make an educated decision as to whether a refinance makes sense for you.

So if you’re refinancing a $200,000 mortgage at a new interest rate of 4. 25%, you could pay $2,000 for 2 points and reduce your rate to 3. 75% on the new mortgage.

Closing costs: The fees you’re charged to finalize a mortgage — whether it’s for a new home or a refinance — which you must pay at closing.

With a refinance calculator, you can enter your current mortgage terms, the new proposed mortgage terms and any fees for refinancing.

A refinance calculator will help you figure out how much money you’ll save on a monthly basis and over the life of your loan, and whether it’s worth the costs of acquiring a new mortgage.

For instance, with a refinance you can potentially get a better interest rate, lower your monthly payments, shorten the length of your loan, build equity faster, consolidate other existing debts by combining them all into a new mortgage, get rid of your mortgage insurance (if you’re refinancing for less than 80% of the value of your home) or even remove a person from the mortgage.

To calculate how long it will take before the monthly savings from your new mortgage outweighs its closing costs (the “break-even” point), use a refinance calculator and enter the basic information about your current mortgage and the new mortgage.

If you find that the break-even point on your new mortgage is 7 years, but you only plan on staying in your house for another 5 years, then refinancing might actually be more costly than just keeping your current mortgage, even if its interest rate is higher.

That means if you’re starting a new mortgage with a refinance, you’ll be paying the bulk of the interest again at the top after previously paying the bulk of the interest in the first years of your old mortgage.

For example, if you currently have a 30-year mortgage and you’re halfway through it, but then you refinance into another 30-year mortgage, you’ll ultimately be paying interest on your mortgage for a total of 45 years.

For instance, if you’re planning to move in a few years, it’s likely that a refinance won’t make sense, since you won’t have enough time with the better terms of the new mortgage to offset the closing costs.

But if you’re staying put in your house for the long haul and can get an interest rate that’s significantly lower than your current mortgage (at least 1% less), then there’s a good chance refinancing will ultimately save you money.

If after using a refinance calculator you find that a refinance makes sense for you, make sure you compare lenders and brokers to find the best mortgage refinance rates, as well as the lowest closing costs.

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