When is Refinancing Worth it?
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Have you ever heard the pearl of wisdom that says you should only refinance if the new interest rate will be at least 2 points lower than your current rate? Perhaps several years ago that was wise advice, but as refinance costs have been getting lower, it could be time to take a serious look. A refinanced mortgage can be worth its cost several times over, considering the advantages that may come, in addition to a reduced interest rate.
You may be able to bring down your interest rate (sometimes significantly) and make smaller mortgage payments with a refinanced mortgage loan. Additionally, you might have the option of tapping into the equity in your property by "cashing out" a sum of money to fix up your home, consolidate debt, or plan a special vacation. With lower interest rates, you might also get the chance to build your home equity faster by changing to a shorter-term loan.
Fees and Expenses
As you probably know, you will have some fees and expenses during your the refinance process. When you refinance, you are paying for most of the same things you paid for during your current mortgage. Among these may be settlement costs, appraisal fees, lender's title insurance, underwriting fees, and others.
Do the Math
Paying points can get you a better interest rate. When you pay (on average) three percent of the loan amount up front, the savings for the term of the refinanced mortgage can be significant. You might be told that these points can be tax deductible, but because tax regulations can be ever-changing, we urge you to consult your tax professional before making decisions based on this.
Another thing about taxes is that if you bring down your interest rate, it follows that you will also be lowering the paid interest amount that you will be able to deduct from your federal income taxes. This is one more cost that some borrowers consider. Call us at (478) 746-2063 to help you do the math.
In the end, for most people the amount of up-front costs to refinance will be paid back very quickly in monthly savings. We'll help you find out what mortgage loan program is best for you, considering your cash on hand, how likely you are to sell your residence in the next few years, and what effect refinancing might have on your taxes. Call us at (478) 746-2063 to get started.
Curious about refinancing? Call us at (478) 746-2063.