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With mortgage interest rates continuing to hit all-time lows, many homeowners are asking the question, "Should I refinance?" Follow these tips to help answer that question.

Specify the reasons for refinancing. Is the purpose of refinancing to lower the interest rate, reduce the monthly payment or change the term of the loan? The refinance mortgage needed will depend on which of these -- or which combination of these -- goals is in play. Based on these goals, set targets for interest rates and monthly payments.

Do the math. It makes sense to refinance if you'll recoup the cost of refinancing before you're ready to sell your home. Contact your lender to get an estimate of the costs involved in refinancing. Divide the amount of the estimated costs by the amount of the monthly savings you anticipate to determine the number of months until you break even. Or use a refinance mortgage calculator like the "Tri-Refi Refinance Calculator" found at

Know what lenders will need. Before approving your loan application, lenders will need to pull your credit and calculate the loan-to-value ratio on your mortgage. Be aware that these factors could affect your interest rate. Lenders will also need to calculate your debt-to-income ratio to determine your ability to repay.

Determine changes in property value. A drastic drop in property value can make it difficult to refinance a mortgage unless that mortgage is old enough to have been paid down substantially.

Research prepayment penalties on the existing mortgage. Some mortgages have penalties for early repayment, which includes refinancing. This is not necessarily a deal-killer, but it is important to know the amount of any penalty so it can be measured against the potential savings from refinancing. Typically, if you have a fixed-rate loan from an Iowa bank, this won't be an issue. Iowa law prohibits prepayment penalties on this type of loan.

Obtain interest-rate quotes from a variety of refinance mortgage lenders. Interest rates and lending standards vary from one institution to another, so it is well worth researching multiple refinance mortgage lenders.

Ask lenders for full disclosure of points, closing costs and other fees. This information will help you compare different refinance mortgage lenders. For example, the lender offering the lowest interest rate may also be charging the most in points. Try to request quotes with as nearly identical terms as possible for comparison purposes.

Ask lenders how long they will commit to their rate quotes. Lenders can't offer the same rate indefinitely, but they may commit to locking in a rate for a reasonable period of time to allow for the application process.


These tips are provided by the Iowa Bankers Association (IBA), representing banks and thrifts in the state. The IBA serves it members by providing legislative advocacy, training, regulatory compliance and other services designed to enhance the ability of banks to serve their communities.  Learn more at


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