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Need to reduce expenses? Consider refinancing.

Posted by Cheryl Costa  May 1, 2009 09:53 AM

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These days, everyone is looking for ways to reduce expenses and, fortunately, mortgage rates are now at multi-year lows. Rates on 30 year fixed rate mortgages are now under 5 percent. If you look hard enough, you can probably get close to 4.75 percent, possibly even lower.

The currently available rates are the lowest recorded since Freddie Mac began tracking mortgage rates in 1971. And the rate for 15 year mortgage is even lower --closer to 4.5 percent. A year ago, the rates on a 30 year mortgage exceeded 6 percent and 15 year mortgages were around 5.6 percent according to the Wall Street Journal.

So, how much can you save by refinancing? If you have a $400,000 mortgage and you refinance from a 6 percent mortgage to a 4.875 percent mortgage, you would be saving almost $300 per month. If you have to pay closing costs, you have to "net" those costs against your monthly savings. For example, closing costs can easily run from $2,400 to over $3,000 so even if you are saving $300 per month, it will take you several months to recoup the fees. If paying closing costs really bothers you, or you are a serial re-financer, look for a "no/no" loan where you don't pay any points or closing costs. The mortgage rate will be slightly higher, but if you think that you might be moving in 3 to 5 years, these loans can make sense.

It is important to note that these rates are for conforming loans (those under $417,000 unless you live in certain high cost areas). If you need a jumbo mortgage, the rates will be higher. You also need to be sure that you still have at least 20 percent equity in your home. If you don't, refinancing might not be an option or you might have to pay a higher rate. You should also be prepared to pay a slightly higher rate if you will be paying off a Home Equity Line as a part of your refinance because many lenders characterize those loans as "cash-outs".

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
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