Is Refinancing Right?

Although Refinancing can make perfect sense in many instances, make sure you evaluate all options to make an informed decision. There are a few reasons that make refinancing seem like a good idea, but in reality, they do not always make sense. Here are some reasons to avoid refinancing.

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1. To Consolidate Debt: The appeal of lower interest rates is real, but you are transferring unsecured debt or secured debt; which if you can't repay, could cost you your home. Also, many just tend to run the cards back up.

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2. To move into a longer term loan: The thought of a lower payment may be appealing, but the amount of money you spend in interest for those extra years of payments will cost you.

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3. To reduce your monthly payment: Refinancing isn't free. Make sure the monthly savings make sense and see how long it will take to break even? If it will take you 4 years to recoup the refinancing costs, but plan on moving in 2 years, you're not saving money at all.

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4. To cashout for investing: If you are disciplined and will actually use the extra money for investing, this can be a good option. However, paying down a mortgage at 5% to 6% per year can be a better deal than plunking your cash into a CD that earns 2.5% every year. Make sure you are a savvy investor before playing with the equity in your home