Refinance Now or Later?

By Karen Lawson Columnist

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Current mortgage rates are still low, and you're thinking about a mortgage refinance. Refinancing for the right reasons can help you reduce debt and add cash to your monthly budget.

How do you know when to refinance your mortgage? The answer depends on your current financial situation, and your financial goals. Here are some tips to help you decide if a mortgage refinance can help you.

Home Equity, Current Mortgage Rates, and Consumer Debt Play a Role

If you want to refinance for the purpose of paying off high interest consumer debt, or otherwise want cash in addition to lowering your current mortgage rate, you'll need to have sufficient home equity. Your equity is the amount of your home's present value less the amount of your current mortgage loan(s). Lenders may offer 100% refinance options, but it's a good idea to keep a cushion of equity, as real estate markets can fluctuate.

Compare Current Mortgage Rates with Consumer Debt Rates

Consumer debt in America now averages more than $8000 per household. This amount does not include car loans, home loans, or other secured debt. Credit cards are convenient, but many carry very high interest rates along with additional fees. If you are paying rates higher than current mortgage rates, this may be the right time to refinance your mortgage to pay off credit card debts. Another benefit of refinancing is that home mortgage interest is often tax deductible. Consult your financial advisor for further details. Other reasons to refinance may include home improvements, and lowering your current mortgage rate. It can be tempting to take out cash for a dream vacation or a new car, but it's not a good idea to take a long term loan for a short term purchase. Another pitfall to avoid is running up credit card balances after a mortgage refinance to pay them off. Drawing up a financial plan complete with goals can help you stay on track, and use a mortgage refinance to your best advantage.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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