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When refinancing a mortgage in Washington, D.C., makes sense

One of the options that homeowners in Washington, D.C., have when struggling to make ends meet is to refinance their mortgage. This can accomplish a number of things, including the following: 

  • Lowering the monthly amount due
  • Changing the type of loan, such as from an adjustable rate to a fixed rate
  • Improving credit through making payments on time

The U.S. government points out that mortgage refinancing is the most common type of refinancing. Through this process, a homeowner essentially pays off his or her loan and takes out a new one.

Though there are a number of benefits associated with the process, it is important to note that not everyone will be a good fit for doing this. One consideration is whether or not the homeowner has built at least 20 percent of equity into the house. As federal law points out, it is usually only once this much equity is in the home that the mortgage holder no longer has to pay private mortgage insurance. People who are not in that situation may want to consider that the PMI payments will not go away with a refinance.

Additionally, the borrower’s credit score will have an impact on the new loan’s interest rate. If the person’s score has gotten worse, a refinance may not always mean paying less money every month, or the process may not even be an option.

Lastly, refinancing is generally only a good idea if the homeowner plans to stay in the home until at least breaking even on the process. Obtaining a new mortgage could cost up to 6 percent of the amount of the loan, which means people who want to move in a year or two may not financially benefit from refinancing. Taking all these factors into account is a crucial part in determining if a refinance is a good idea.

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