When is Refinancing Worth it?
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Have you ever heard the pearl of wisdom that says you should only consider refinancing if the new interest rate will be at least 2 points under your current rate? That could have been accurate years ago, but as refinancing has been costing less recently, it's never the wrong time to consider a new loan! A refinanced mortgage is often worth its cost several times over, factoring in the advantages that come, in addition to a lower interest rate.
Benefits from Refinancing
When you refinance, you might be able to reduce the interest rate and monthly payment amount, sometimes by a lot. You might also have the option to "cash out" some of your equity, which you can use to take care of higher interest debt, add on to your home, or finance a vacation. You might be able to refinance into a shorter-term mortgage program, giving you the ability to build your home equity quicker.
Expenses and Fees
As you probably know, you'll have to pay for the the refinance process. With your refinance, you are paying for a lot of the same things you were charged for during your current mortgage. Among these will be settlement costs, appraisal fees, lender's title insurance, underwriting fees, and others.
Doing the Math
You might think about paying points to reduce your interest rate. When you pay (on average) three percent of the loan amount up front, the savings for the life of the refinanced mortgage can be substantial. We recommend that you talk to a tax professional before acting on hear-say that these points paid may be deducted on your federal income taxes.
Speaking of taxes, if your interest rate is reduced, naturally you will also be reducing the paid interest amount that you'll be able to deduct from your taxes. This is one more cost that borrowers take into account. Call us at (760)789-9995 to help you do the math.
In the end, for most people the total of initial costs to refinance are paid back very quickly in savings each month. We can help you find out your options, considering the effect a refinance could have on your taxes, if you are likely to sell your home in the next couple of years, and your available cash. Call us at (760)789-9995 to get you started.