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If you are thinking about refinancing your mortgage, you might want
to consider other types of mortgages. For example, you might want to look into a
15-year, fixed-rate mortgage. In this plan, your mortgage payments are somewhat
higher than a longer-term loan, but you pay substantially less interest over the
life of the loan and build equity more quickly. (Of course, this also means you
have less interest to deduct on your income tax return.)
You also might want to consider refinancing if you have an
adjustable rate mortgage with high or no limits on interest rate increases. You
might want to switch to a fixed-rate mortgage or to an adjustable rate mortgage
that limits changes in the rate at each adjustment date as well as over the life
of the loan.
If you decide to apply for refinancing with a particular mortgage
company, and if you do not want to let the interest rate "float" until
closing, get a written statement to guarantee the interest rate and the number
of discount points that you will pay at closing. This binding commitment or
"lock-in" ensures that the mortgage company will not raise these costs
even if rates increase before you settle on the new loan. You also may consider
requesting an agreement where the interest rate can decrease but not increase
before closing. If you cannot get the mortgage company to put this information
in writing, you may wish to choose one that will provide this important
information.
Most companies place a limit on the length of time (say, 60 days)
they will guarantee the interest rate. You must sign the loan during that time
or lose the benefit of that particular rate. Because many people refinance their
mortgages when rates decline, there may be a delay in processing the papers.
Therefore, you may want to contact the company periodically to check on the
progress of your loan approval and to see if additional information is needed.
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