Is Refinancing Worth the Cost?
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Have you ever heard the old rule of thumb that says you should only consider refinancing if the new interest rate will be at least two points under your current one? That might have been valid a while back, but with the fact that refinancing has been costing less in recent years, it is never the wrong time to consider a new loan! A refinanced mortgage is often worth its cost many times over, considering the advantages that it brings, in addition to a lower interest rate.
Benefits from Refinancing
You could be able to bring down your interest rate (sometimes by a lot) and make smaller mortgage payments with your refinanced mortgage. You might also have the ability to "cash out" some of your equity, that you will be able use to take care of higher interest debt, add on to your home, or plan a vacation. With reduced interest rates, you may also be able to build your home equity faster by changing to a shorter-term loan.
Expenses and Fees
All of these advantages do come with some expense, though. You'll pay the same types of expenses and fees as with your current mortgage. These probably include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and so on.
Doing the Math
You could need to pay points (prepaid interest) to gain a better interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the life of the new mortgage can be significant. You may be told that these points may be tax deductible, but as tax regulations can be difficult to keep up with, we urge you to consult with a tax professional before considering this in your calculations.
An additional expense that borrowers may consider is that a reduced interest rate will reduce the interest amount you'll deduct from your federal income taxes. We can help you do the math! Call us at 3038627760.
In the end, for most people the total of up-front costs to refinance will be made up very quickly in monthly savings. We can help you find 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 available cash. Call us at 3038627760 to get you started.
Curious about refinancing? Give us a call at 3038627760.