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Advice on When it Makes Sense to Refinance

Mark Cappel
UpdatedNov 18, 2008

How does one decide if refinance is a good option or not?

I owe $13,500 @ 6.385 on my first mortgage and $11,500 on my equity line. I need home repairs and was considering a refinance to consolidate both mortgages. I have a quote of 6.185 on a 10 year fixed. Is this wise or should I just use my equity line for the repairs.

when considering a refinance, always look at the total cost involved. consumers usually refinance their loans if the new rate they are getting is at least 2 percentage points less than their current rate, but that might not be the case all the time. before you can determine whether or not a refinance is a viable option for you, you need to determine how much refinancing you home will cost. refinancing your mortgage can be a very expensive process, as closing costs, appraisal fees, broker fees, penalties, etc., can quickly add up to well over $10,000, or even more. the question of how much your refinance will cost is very difficult to answer, as i do not know if any pre-payment penalties will be charged by your current lender due to your early refinance or what closing costs will be charged by your new lender. first, you need to contact your current lender to find out if any early refinance penalties will be charged, and when you can refinance without penalty. you should then contact several different mortgage lenders to discuss the loan terms they can offer you based on your current financial situation.

if you want an introduction to pre-screened mortgage lenders, makes it easy to compare mortgage offers and different loan types. please visit the refinance loan page and find a loan that meets your needs. if you enter your contact information in the savings center at the top of the page, we can have several pre-screened lenders contact you to discuss the refinance options available to you. these lenders should be able to tell you the loan terms available to you based on your current financial situation, and tell you if a refinance loan can help save you money over your current loan.

once you have determined what the refinance will cost in terms of penalty charges and fees, and what new loan terms are available to you, you can weigh the two options against one another to determine if the terms offered on the new loan will save you enough money to outweigh the cost of refinancing your current mortgage. if you find that you will save more money by moving forward with a refinance now, then by all means, i encourage you to do so. however, if the costs outweigh the savings on your new loan, then you may want to wait until your penalty period has expired before you move forward with a refinance or until you are able to refinance at a lower interest rate. to learn more about refinance loans, i encourage you to visit the home refinance resources page.

while there are many guidelines, it's generally your own financial situation that dictates when it's time to refinance. this can be tricky, as there are many factors surrounding refinancing that will have a bearing on whether now is the best time, or whether you should wait. current interest rates are very low and it does seem to be a good time to take advantage of the same and refinance to a lower rate. but, before you decide, think carefully about the following factors.

home equity: depending on how much money you put as down payment and the current market value of your home, calculate how much equity you have in your home. most home owners do wait until they have some equity in their homes before refinancing. when making loan decisions, one of the most important factors potential lenders review is the loan-to-value ratio, or ltv, of the proposed loan. this ratio compares the amount of the loan you are trying to obtain to the current value of your home. given the relatively low amounts due on your mortgage and your home equity line, i don't think that equity will be a major factor in your case.

your credit history: even though you have had a loan before, and are now thinking about refinancing it, you still need to have a good credit score to get the lowest possible interest rates and the best deal on your refinance. it is always better to get your credit report from the three major credit reporting bureaus before applying for your refinance to make sure that there are no errors in it, and to get an idea of what your credit score is likely to be. you can request a free copy of your credit report by visiting

prepayment penalty: another problem encountered by many borrowers trying to refinance their home loans are early refinance penalties charged by their current lenders. many loan agreements, especially "sub-prime" loans designed for borrowers with credit problems, state that borrowers must pay a penalty to their current lender if they wish to refinance their loan before the expiration of a certain period defined by the loan agreement. these penalty periods vary from loan to loan, but are frequently between two to five years from the date of the original mortgage. before you attempt to refinance your current mortgage, you should contact your current lender to discuss whether or not your current loan agreement includes a prepayment penalty, and if so, its amount and when you can refinance without penalty. these penalties can be quite costly, and can easily make a refinance loan too expensive to save you money over your previous loan.

if your income has increased, or if your credit is excellent, refinancing may be a good option for you, as you may be able to get a much lower interest rate, or renegotiate the terms of your home loan when refinancing. you should contact several potential lenders to discuss the loan terms they can offer you on a refinance loan. after speaking with several lenders, you should be able to determine whether a refinance loan is a financially viable option for you at this time.

i wish you the best of luck in finding a loan the meets your needs.

i hope that the information i have provided helps you find. learn. save.




BBill, Dec, 2008
It is not possible to predict the exact rate until you apply for a loan. But yours seems to be a good case for refinance. You should get quotes from multiple lenders to see what the best deal will be. is a great place to start, you can request a quote here:
CCathy Braton, Dec, 2008
We would like to refinace. We are currently at 6.25 Fixed 30 year. We owe 240 on a 375K value of our home. Our credit scores are 739 & 727. Will this be approved at 5% or do you need higher credit scores than that. If that is the case, what can we % can we refinance with these credit scores. Thanks