When is Refinancing Worth it?
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It has been said that only when your new interest is at least 2 points below your current rate, should you refinance your mortgage. Maybe that was sound advice several years ago, but since refinance costs have been falling recently, it may be a good time to take a serious look. A refinance may be worth its cost several times over, factoring in the benefits that it brings, along with a reduced interest rate.
When you refinance, you could have the ability to reduce the interest rate and monthly mortgage payment amount, sometimes significantly. You could also have the ability to "cash out" a portion of your home equity, which you are able use to consolidate debt, make home improvements, or plan a vacation. You may be able to refinance into a shorter-term mortgage program, giving you the ability to build your equity faster.
Expenses and Fees
Of course, you will have to pay for the process of refinancing. You'll be charged the same sort of expenses and fees as you did with your current mortgage loan. Included in your costs might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might need to pay points (prepaid interest) to attain a more favorable rate of interest. If you pay (on average) three percent of the mortgage loan amount at the start, the savings for the term of the refinanced loan can be great. You might be told that these points may be tax deductible, but because tax regulations are difficult to keep up with, we urge you to speak with your tax professional before considering this in your calculations.
Another thing about taxes is that if your interest rate is lowered, naturally you'll also be lowering the interest amount that you can deduct on your taxes. This is another cost that borrowers consider. Call us at (800) 288-9693 to help you do the math.
Ultimately, for most borrowers the total of up-front costs to refinance will be paid back soon in monthly savings. We can help you figure out your options, considering the effect a refinance might have on your taxes, if you are likely to sell your home in the near future, and your cash on hand. Call us at (800) 288-9693 to get you started.
Curious about refinancing? Give us a call: (800) 288-9693.