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Should you consider refinancing your mortgage?

If you've been a homeowner for a little while now, you may be asking yourself the all-important question, "Should I refinance my mortgage?"

People refinance their mortgages every day. Back when rates hovered between 3.5 percent and 4 percent, refinancing constituted a majority of the home loan application volume that took place each week, according to archived data maintained by the Mortgage Bankers Association. Lately, however, the refinancing portion of application activity has slid considerably, dipping below 40 percent.

You probably know the reason why: Rates have risen. Based on Freddie Mac data, 30-year fixed-rate mortgages averaged approximately 4.8 percent toward the end of 2018. That's up nearly a full percentage point from the final month of 2017.

Given this, you may be under the impression that refinancing your home loan doesn't make sense. However, even a fraction of a difference in your current interest rate can help you save potentially hundreds - if not thousands - off your mortgage over time.

Generally speaking, experts say refinancing is worthwhile when you can lower your rate by half a percentage point. As an example, perhaps your mortgage currently has an interest rate of 5 percent or thereabouts. By shopping around and running the numbers via a refinance calculator, a 4.5 percent rate can take off around $50 to $100 off what you spend each month in interest. The exact amount, of course, depends upon the terms of the loan. That kind of money really adds up over time so you can keep more of what you earn.

Having said all that, a lower interest rate isn't the only reason why it may make sense to refinance. Here are two other worthwhile justifications:

1) Your house is worth more

Homeownership is a smart investment, especially these days, as more homes are appreciating in value. According to recent quarterly figures from ATTOM Data Solutions, approximately 14.5 million properties are in positive equity. That accounts for roughly 1 in 4 homeowners who still have outstanding mortgage balances. Determining the value of your house is a bit more involved than positive equity data, but this gives you an idea.

As noted by Credit Karma, refinancing your mortgage with more equity available can provide added funds to pay off other expenses. This is made possible through cash-out refinance services, which work much like a home equity loan. You can then use the extra cash however you'd prefer.

2) You have a better credit score

Do you check your credit score? More specifically, do you check it often? Many people don't, unfortunately. You should get in the habit because the higher your score is, the better terms you get from lenders. You're entitled to a free credit report every year - one from all three credit bureaus. Once you get the information, reach out to your mortgage loan officer and run the numbers. You'll see what you may be able to save assuming your score is in better shape now.

Sure, rates may be slightly higher today compared to last year - but they're still quite low by historical standards. Your next step here is a simple one: Talk to your lender soon to determine if refinancing is ideal for you.

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