When is Refinancing Worth it?
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It has been said that only in the case your new interest is at least 2 points lower, should you refinance your loan. Maybe several years ago that was good advice, but as refinance costs have been falling recently, it could be a good time to take a serious look. Refinancing your mortgage has various advantages that often make it worth the initial cost a few times over.
Advantages of Refinancing
When you refinance, you could have the ability to reduce your interest rate and monthly mortgage payment , perhaps by a lot. You also could have the option of tapping into the equity in your home by "cashing out" some funds to fix up your home, consolidate debt, or plan a special vacation. You could be able to refinance to a shorter-term mortgage loan, giving you the ability to build your home equity quicker.
Expenses and Fees
All of these benefits do cost something, though. You will have to pay the same types of fees as you did with your current mortgage. Included in the list will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
You could need to pay discount points (prepaid interest) to get a better rate of interest. The amount you'll save over the life of the mortgage could be substantial if you have paid up front about 3% of the new loan balance. Please consult with a tax professional before acting on hear-say that these points paid can be deducted on your taxes.
An additional expense that a borrower may consider is that a lower rate of interest will lower the interest amount you'll deduct on your federal income taxes. Call us at (760)789-9995 to help you do the math.
All things considered, for most borrowers the total of up-front costs to refinance are paid back very quickly in savings each month. We'll work with you to find out which mortgage program is ideal for you, taking into account your cash on hand, the likelihood of selling your residence in the next few years, and what effect refinancing will have on your taxes. Call us at (760)789-9995 to get you started.