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|Paul and Sarah Scheper
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How to Know When to Refinance Your Mortgage
If you can qualify for an interest rate that is at least a full percentage point lower than what you currently have on the loan, it may be wise to refinance. It also makes sense if the refinance will allow you to eliminate private mortgage insurance (PMI) from your monthly payment.
As you decide whether you want to refinance your mortgage, consider any closing costs that you'll have to pay. In most cases, the closing costs are between 3% and 6% of the loan value, so consider how long it would take to recoup the total costs based on your decreased monthly payment.
Some lenders offer to roll these into your loan as part of a refi, but you end up paying interest on the added cost over time. A “no-closing-cost” loan can also seem appealing, although this option is usually only available with a higher interest rate, which defeats the purpose of refinancing in the first place. As you consider these factors, you can make an informed decision as to whether a refi is worthwhile.
Sources: Nerd Wallet, Investopedia
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