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Buyer beware

April 2003 Issue

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Interest rates are at their lowest levels ever and offers abound with opportunities to refinance your home mortgage. Of course many of the offers are legitimate and refinancing may be perfect for you if your original mortgage was acquired when interest rates were considerably higher.

As with any financial dealings or transactions, caution is the operative word. You are ultimately responsible for protecting your interest and investment in your home. Some things you may want to pay particular attention to while investigating refinancing options include:

Watch interest rates. Yes, the prime rate (the interest rate banks charge to their most credit worthy customers, often business owners, etc.) is at its lowest rate ever. However, since a mortgage is a consumer loan, you will most likely be offered a slightly higher interest rate.


Most experts agree that a good gauge of when to consider refinancing is if the interest rate you can get is less than your existing mortgage rate by 2% or more.

Read everything closely. Refinancing is treated just like buying a home for the first time. Fees, charges, points, and other costs can make for a considerable up front payment at the time the refinancing goes through. You have to weigh the benefit of making a large lump sum payment and having a lower monthly payment against your current mortgage payment.

If you have a considerable portion of time on a 30-year mortgage paid, it may not be in your best interest to refinance. Remember, if you refinance at a lower rate, you will have the payment for a new period of 30 years. With your existing mortgage, you may have a far shorter period to pay it off.

Be cautious of banks that offer a home equity line of credit as an alternative to refinancing. This gives you a line of credit on the equity you have built in your home. The interest rate may be variable instead of fixed. Also, the convenience of loans against your home is a very serious thing. Really consider the potential of losing your home if the credit line loans happen to get out of hand or you happen to lose employment.

The Federal Trade Commission (FTC) is a great source of information on measures you should be aware of to protect yourself when considering refinancing options. You may find them at

Above all, remember that your home is just that, your home. Read, ask questions, and do research before entering into discussions about refinancing. You’ve earned your equity over a number of years of hard work and don’t let anyone take that away from you.

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