To refinance or not to refinance, that is the question.  When you refinance your home mortgage, you are basically paying off your existing mortgage by taking out a new loan.  You may do this to lower your loan payment or reduce your interest rate.  You may even refinance to get some cash at closing.  The question is “is refinancing right for me?

We at 52 Weeks to Prosperous Living are big fans of refinancing when it makes good financial sense.  So here are a few things to look at when trying to decide whether or not you should refinance.

1.      What is your purpose?  If your main aim is to get cash to purchase more toys or free up cash to spend more on a fancy car, DON’T DO IT!!!  If your goal is to reduce the amount of interest you will pay over your lifetime or free up cash to reduce debt, or possibly even use some cash at closing to consolidate your debt, refinancing very well may be right for you.  It can be a great way to free up cash flow to get out of debt more quickly, and possibly one of the easiest.

2.      If your purpose is going to be beneficial to your overall financial picture, then the next step is to gather information.  You may know what your monthly payment is, but you need to also look at your current interest rate and the terms of your loan, as well as the type of loan you have (our mortgage refinance worksheet is a great tool for this and makes it really easy).  Now that you have this information handy, you can compare your options and see if you can reach your goals by refinancing.

3.      Find a good mortgage professional.  Typically a bank can do your mortgage, but you’ll get a lot better offering from a good professional that has access to multiple lenders.  A good professional will walk you through every step of the process, including helping you understand the true costs of your mortgage, you know, the ones that don’t show up in the interest rate.  If your goal is saving interest over the long haul, make sure you plan on staying in your home for a while, since the way mortgages are amortized means yo pay mostly interest the first few years. 

4.      Be disciplined!!!  This is key to your financial success.  Be disciplined in using the money saved by refinancing your mortgage to better your financial situation.  Don’t get caught up in the keeping up with the Jones’s. 

Like any financial tool, refinancing your mortgage can be a great boon to your financial success, but only if used properly.  Be smart.  What more can I say?  If you’re unsure, use a trusted advisor to help guide you.  Remember, slow and steady wins the race!

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