When is Refinancing Worth it?

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Ever hear the pearl of wisdom that states you should only consider refinancing if the new interest rate will be at least 2 points under your present one? Maybe that was sound advice a number of years ago, but as refinance costs have been falling recently, it may be time to look into it. Refinancing your loan has a number of advantages that will often make it worth the up-front cost many times over.

Benefits

You could be able to bring down your interest rate (sometimes by a lot) and reduce your monthly payment amount with a refinanced loan. Additionally, you could be given the option of tapping into the equity in your house by "cashing out" some funds to renovate your home, consolidate debt, or take your family on a vacation. You could be able to refinance into a shorter-term mortgage, giving you the ability to build your home equity quicker.

Fees and Expenses

As you probably expect, you'll have to pay for the the refinance process. With your refinance, you're paying for a lot of the same things you paid for during your original mortgage loan. Included in the list will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

Do the Math

You might need to pay discount points (prepaid interest) to get a more favorable interest rate. The amount you'll save on the life of the mortgage loan may be substantial if you've paid up front about three percent of the new loan total. We recommend that you consult with a tax professional before acting on advice that any paid points may be deducted on your federal income taxes.

Speaking of taxes, once your interest rate is reduced, it follows that you'll also be lowering the interest amount that you'll be able to deduct on your federal income taxes. This is another expense that borrowers consider. We can help you do the math!

Ultimately, for most people the amount of initial costs to refinance are paid back very quickly in monthly savings. We'll work with you to determine which program is ideal for you, considering your cash on hand, how likely you are to sell your house in the near future, and how refinancing might effect your taxes.

Curious about refinancing your home? Give us a call at 575258131