Use All Possible Methods to Reduce Costs

You are now the proud owner of your dream house and you got it financed by negotiating a mortgage. For this you might have had to take out a private mortgage insurance (PMI). Usually annual mortgage insurance cost is between 0.5% and 1% of the loan amount. If you were able to negotiate get a policy with a declining term or could inveigle a policy which has the lowest premium; that is wonderful news. Otherwise, you need to look at other means of lowering your costs. You might have even made a down payment of 20% when taking out the mortgage loan. Remember, some lenders offer a considerable discount if you make a lump payment upfront.

Some Other Ways to Effect Savings

In case, you were unable to do so, look to some other ways of reducing costs or cancelling the PMI early. One way would be to make early and larger payments towards the loan to ensure that you build an equity of 20% or more. Then you can choose to go for mortgage refinance when PMI can’t be cancelled by early repayments. A refinance simply means taking out a new loan while paying off the existing loan. Sometimes you might receive some cash (converted home equity) in the process. However, cancelling PMI is not the only reason you might want to refinance.

If rates have dropped since you last financed your home, you may want to consider refinancing. You might also be wanting to lower interest rates or want to cash out (extract equity). If you want to extract cash equity in your home for home improvement, building an education fund or consolidating debt, you might choose to refinance. Whatever may be the scenario, you will have to provide the lender with detailed documentation of the property, your employment and financial history for refinancing.

Take a Long, Hard Look before Refinancing

Different configurations of mortgages can be confusing, especially for someone who is not in-the-know of financial jargon. Many of our monthly expenses, such as utilities, gas for our car, and food change a bit from month to month. Yet when it comes to finding ways to cut back our expenses we tend to focus on those rather than fixed expenses like our mortgage payments. Since potential benefits to mortgage refinance vary on a case-by-case basis, just keep in mind that, if rates are about the same and if you have the same or a worse credit score, you are unlikely to be able to qualify for a lower interest rate than you have now.

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