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Refinance: Should you?

For the moment, interest rates remain an excellent bargain. They hover near historically low levels, but as they begin what many experts predict will be a steady, continuous rise, many consumers are rushing to refinance and lock in those great rates. Several key economic indicators are pointing to an increase in the cost of borrowing money that will probably continue over the long term. And financial analysts predict an end to those record-breaking low rates we have enjoyed for the past few years. As interest rates go up, so will the monthly payments of those borrowers who have adjustable rate mortgages. And lots of us have those, because they proved to be a great tool for taking advantage of the rising prices of the recent real estate bull market.

One of the most compelling reasons to refinance right now is to switch from those adjustable rates into loans with more predictable fixed rates. Consumers who lock in lower rates now by refinancing into fixed rate loans will save money, especially as rates on adjustable mortgages climb. Others have debt on credit cards and other loans at high interest rates. And it is good idea to get out of those loans and into less expensive ones, too. If you currently own a home with equity, you can take out a second mortgage or home equity loan to pay off other high-interest loans.

For example, if you have a credit card with 10 percent interest, and you refinance to a home equity loan at 7 percent, you automatically save 3 percent. Use that kind of strategy now to lock in low rates and pay off all high-interest car loans, bank line of credit notes, and department store charge cards. By consolidating those debts into one single low-interest payment, you can pay off an entire basketful of high-risk loans and refinance your personal debt into a single and easy to manage second mortgage payment. Of course there are also many homeowners who took out loans to buy property back when interest rates were higher than they are now. Those people can refinance to low rates while they still have the opportunity, and save money every month from now on, for the remaining life of the loan. By simply lowering your interest rate by one or two points, it is possible to save tens of thousands of dollars over 20 or 30 years. When you convert to lower rates, it immediately shrinks the amount of your monthly payment. And with a fixed rate loan, your interest rate will never go up, for as long as the loan exists. Pay on it for decades, if you like. Regardless of what happens to prevailing rates and adjustable rate mortgages, your loan will remain the same.

By acting now to refinance, you can reward yourself far into the future, particularly if interest rates do continue their steady rise. Of course if you are fortunate enough to have a fixed rate mortgage that you got at an attractive rate, there is no need to refinance. You can sit back and relax, while others rush around trying to put their financial affairs in order while there is still time.


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