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Is it Time for Massive Nationwide Mortgage Refinancing?

Homeowners with mortgages should be paying attention to a debate currently taking place at the highest levels of politics.

Turns out that some politicians have been advocating using Fannie Mae and Freddie Mac to set off a nationwide mortgage refinancing and it seems to be getting bipartisan support, reports the Washington Post.

The impetus for the idea comes from the fact that more than 75% of homeowners have been paying interest rates higher than 5 percent, whereas the current interest rate is closer to 4 percent. That could mean hundreds of dollars of difference just in a month.

When you refinance, you pay off the original mortgage and replace it with a new one.

Is it always a good idea to refinance? Well, no. In almost all cases, you won’t recover the closing costs for a few years, so if you are planning to sell your home in the near future, it makes little sense to refinance unless you can obtain a no-points adjustable-rate mortgage at a low “teaser” rate.

And how do you know if the numbers make sense?

Well, according to FindLaw, you should calculate the difference between your current mortgage payment’s after-tax cost versus your future payment’s after-tax cost.

Because Uncle Sam gives you a tax break on mortgage interest (15 to 31 cents per every dollar of interest paid, depending on your tax bracket), it’s important to figure the tax break into your calculations, especially if you are (or expect to be) in the top tax bracket.

Multiply the annual interest you pay currently by .15 or .31, depending on your tax bracket, to figure out your current tax savings. Then multiply your annual interest paid on the new loan by the same number.

FindLaw advises homeowners compare rates and charges between several lenders, including your current mortgage servicer. Also, consider switching from a thirty-year to a fifteen-year mortgage. You may be able to pay off your loan in half the time without increasing your monthly payment by much.

Note that the amount remaining on the loan must be less than your home is now worth. Mortgage lenders are bound by strict state and federal guidelines spelling out the percentage of current value they can lend. Generally speaking, you can refinance if your home is worth 10 percent more than the loan amount.

It is not an easy bit of math, nor an easy judgment call. If you think it is necessary, seek an attorney’s advice.

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