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It is indeed a smart decision to refinance your mortgage loan in order to get a lower interest rate as any reduction in the applied rate of interest will lead to considerable savings on the loan over the period of mortgage. According to the thumb rule, as suggested by majority of the mortgage lenders, one should refinance only when the rate of interest has gone down by a minimum of 2 percentage points.
However, there is a lot more that needs to be considered besides just the decrease in the rate of interest. Therefore, mortgage refinancing with the sole purpose of obtaining a drop in the rate of interest is not a very good financial decision. For instance, an important factor that should be considered carefully before refinancing is the closing cost involved, which may be expensive even after you get your mortgage loan refinanced. The thumb rule of when one should refinance, thus, emphasizes on lowering of interest rates one of the most important reasons behind refinancing.
The option of refinancing mortgage may become inappropriate in case the homeowner is willing to refinance to overcome his financial adversity. While refinancing can facilitate homeowners in stretching out the payments or in restructuring their loans in order to lower the amount of monthly installments, the additional costs linked to refinancing can complicate the financial hardship of the homeowner to a greater extent.
Thus, if your only reason for getting your mortgage loan refinanced is to get out of the ongoing financial crisis, the thumb rule is to first determine if you are capable enough to get loan modification. Loan modification comes with a much lesser fee and is particularly designed for restructuring mortgage loans, without the additional costs involved in full refinancing.
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