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Refinancing 101.

As you have surmised by now, I enjoy researching information for this column, as finance/budgeting is my passion, just as nursing is yours. The problem is, however, there are hundreds of different areas in which one could focus. Due to the recent buzz on the internet and television regarding interest rates, I decided to focus on the topic of refinancing for this issue.

Mortgage refinancing is on a lot of people's mind these days (including mine). Some homeowners want to refinance because their credit scores have improved and they hope to secure a better interest rate. Others want to obtain a lower interest rate or roll in additional purchases, vehicles, or credit card balances into one loan. Whatever the reason, we will do a brief "walk-through", on refinancing 101.

Refinancing, in simplest terms, means one is paying off an existing mortgage by taking on a new mortgage. The real question for many borrowers is WHEN is the right time to move forward? There is not a "set rule" as some proclaim, such as the two percent rule, rather situations must be examined on a case by case basis. Refinancing should be done when it mathematically makes sense to do so, and when it helps you achieve your desired goal (and only YOU know those goals). As stated earlier, different people refinance for different reasons. The first step is determining your financial goals and whether refinancing will help you achieve those goals.

Once your financial goals have been determined, there are several other factors to consider when deciding if you should refinance your mortgage loan. These include:

* How long you plan to stay in the house (and make payments on the new mortgage)

* How much lower the interest rate will be on the new loan, after refinancing

* How much you will have to pay in closing costs and fees when you refinance

* Whether or not you plan to do a cash-out refinance

Once you have all of these pieces of the puzzle, you can plug the numbers into a refinancing calculator to see how much you might save. Based on these results, you will know if it is a good time to refinance. These calculators may be found online at, or many others websites on the net.

Here is a good key to the mortgage math business. In order for a refinance to make sense, the amount you save must exceed the amount you pay (in closing costs). Anything short of this mark, and you should not bother with it. This is often referred to as the break-even point (BEP), and I will not bore you with the details.

So you know refinancing can save you a lot of money, and now you are wondering how to get started and how to get the best mortgage refinancing rates in order to make the whole process worthwhile. Most people understand the basics of interest rates and how they pertain to mortgages. However, keep in mind interest rates are only one of two factors when refinancing--the other being closing costs.

How, then, does one get the best rate? The first thing you need to understand is not all borrowers will qualify for the same interest rate. There are many factors which determine the rate, and I have listed some below:

* Credit Score (A score of 750 or higher will ensure the better rates)

* Debt-to-income ratio (Lenders prefer a debt-to-income ratio of less than 30%)

* Amount of equity in current home (Lenders prefer borrows to have more than 20% equity in their home)

Though there are pros and cons and a lot of factors involved with refinancing, I hope I have at least piqued some curiosity and have assisted you in determining when it makes sense to pursue refinancing. There is a plethora of information on the internet about refinancing (and not enough room in this article) and I encourage you to research all of the information to make well-informed decision. God bless and I wish you well in your financial pursuits!!

(Some statistical information was taken from the Home Buying Institute website).

Lisa DeSha, MBA
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Author:DeSha, Lisa
Publication:Missouri Nurse
Geographic Code:1USA
Date:Aug 1, 2010
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