If you’d like to get a free refinance, also called a no-cost refinance, I would start by calling a local broker. If you don’t know a broker personally, ask around. Someone you know does. Call them up and explain your current loan balance, interest rate, and income. Tell them you’d like to know if they offer a free or no-cost refi.

How Can It Be Free?
Obviously, it’s not really free. You pay a slightly higher interest rate for not having costs. Usually 1/8 of a point. In most cases, that’s not a big deal, but you should run the numbers to make sure it makes sense in your situation.

You should also make sure that the loan value is equal to or lower than your home value. In our case, both our appraisals came in higher, one substantially higher, than our purchase price. Actually, I think the second appraisal was too high. There’s simply no way my home value has increased 6% in the last year, even with the window treatments and new paint. But whatever, it got me my refinance.

If you need to pay down your mortgage to qualify for a refinance, determine whether you’ll really save that much money and have enough cash to pay the difference without completely draining your emergency fund.

When Should You Refinance?
Keep an eye on mortgage rates. Right now, they’re at record lows so it’s a great time to refinance. Keep in mind that the averages you see are just that: averages. Unless you pay points or costs, you won’t get the absolutely lowest rate available. Also, if you have a conforming jumbo or jumbo loan, your rate will be higher. You may hear rates being advertised on the radio that are much lower than yours, but those are reserved for loans below $417,000. If you’re close to that, ask your broker if paying down the mortgage to get below that magic number will reduce your rate.

What Kind of Mortgage Should You Get?
It really depends on your budget. Obviously, in this market a fixed rate is the best way to go. Today’s low adjustable rates will rise, but a fixed rate is a fixed rate for the term of the loan.

There is the question of a 30-year mortgage vs. a 15-year-mortgage. If you’re in the first couple years of your loan, a 30-year loan is probably the most doable. If you’re halfway through, then a 15-year-loan will help you save money on interest, both by reducing your rate and reducing the interest paid over the term.

If you’re at less than fifteen years, take a close look at those numbers again. How much interest do you really have left on the loan? Make sure your the total interest over the life of the loan will be less than you’d pay in total with the original loan. Finally, you can refi to any term, but continue to pay the same amount you did before, which will allow you to pay down your mortgage faster.

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