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Low Rate Mortgage Refinance

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Low interest rate refinancing can be a great investment tool for homeowners. People choose to refinance their existing mortgages for many reasons, sometimes to shorten the term of the loan, and sometimes to lower the interest rate for better monthly payments.

What is Low Rate Refinancing?

"Low rate refinancing" simply means refinancing a loan so that the interest rate is lower, meaning you'll pay less interest on each payment. An added benefit of lower payments is that it frees up cash for other expenses, and could even free you up to pay off your mortgage early.

Unlike cash out refinancing, a low rate refinance isn't done to get money from your home's equity. The purpose of this kind of refinancing is to put money into your home more quickly and get more value for each payment as you do so.

How Does Low Rate Mortgage Refinancing Work?

By refinancing your mortgage, you'll be essentially paying off your present mortgage by taking out a new one. What sounds simple in theory, though, can actually be complicated in action, since the amount of your monthly payments, amortization time, and the amount you'll pay in total can vary widely from mortgage to mortgage.

In essence, it's possible to use a new, lower interest mortgage to pay off an old, higher interest one. Whether or not it's worth refinancing to make this switch will depend on the amount of money you'll save in lower monthly payments (or a shorter amortization time) versus the amount you'll have to spend in closing fees to refinance.

If you're shopping for a low-rate mortgage to refinance your home, you'll want to make sure you get the lowest interest rate available for your credit type and terms that you are comfortable with. Mortgage brokers may appear to offer a wide array of options for refinancing, but each will be biased toward certain lenders, so it is a good idea to check with more than one broker or bank. Online services like Lending Tree and Lower My Bills can be a good way to compare available mortgages until you're satisfied you've found the best deals available

When is the Right Time to Refinance a Mortgage?

The best time to refinance a mortgage is when interest rates are at their lowest, but there are other factors to consider as well. Low mortgage rates usually correspond to high property values, so it may be possible to refinance and get cash out of your home based on its total equity, in addition to securing a lower interest rate.

Whether or not you choose to seek low rate refinance, you should also consider the amount of time left on your current mortgage. If you're in the final five or 10 years of a 30-year mortgage, the majority of your payments will go toward the principal, rather than the interest. It doesn't make much sense to refinance, even at a better rate, if it means paying more interest in the early months of your new mortgage, on top of closing fees. If refinancing your mortgage will cost you more in closing fees than you'll save in interest, it's generally better to stay with the mortgage you have.

Keep in mind, however, that there are several ways to use a lower interest mortgage to your advantage. You can keep the amortization time the same and owe smaller monthly payments - much smaller in some cases - or you can continue paying the same amount each month and save even more in the long run when your mortgage ends two, or three, or even ten years earlier. Either way, you can potentially save thousands of dollars - well worth the effort of looking into refinancing when mortgage rates are low.