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Refinancing generally becomes worthwhile if the current interest rate on your mortgage is at least two percentage points higher than the prevailing market rate. I recommend that you talk to some lenders to determine the available rates and the costs associated with refinancing (such as appraisals, title search, attorney's fees, and points). Once you know what your refinancing costs will be, determine what your new payments would be if you refinance. You can estimate how long it will take to recover the costs of refinancing by dividing your refinancing costs by the difference between your new and old payments (your monthly savings).

Example: Your refinancing costs will be $2,000, your new monthly payments will be $600 and your current payments are $700. It will take you 20 months to recover the costs of refinancing your mortgage ($2,000/$700-$600).

IMPORTANT: The deductibility of interest paid on refinanced indebtedness is subject to some tricky rules. Depending on the circumstances, the interest may be fully deductible, partially deductible and, in some rare cases (such as where the residence does not secure the refinanced debt), nondeductible.

Be aware that the amount you ultimately save depends on many factors, including your total refinancing costs, whether you sell your home in the near future, and the effects of refinancing on your taxes.

TIP: Refinancing can be a good idea if you:

Want to get out of a high-interest-rate loan to take advantage of lower rates.

Have an adjustable-rate mortgage (ARM) and want a fixed-rate loan in order to know exactly what the mortgage payment will be for the life of the loan.

Want to convert to an ARM with a lower interest rate or more protective features than the ARM you currently have.

Want to build up equity more quickly by converting to a loan with a shorter term.

Want to draw on the equity built up in your house to get cash for a major purchase or for your children's education.

I would be happy to discuss any concerns you may have relating to refinancing.


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