When is Refinancing Worth it?
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Ever hear the pearl of wisdom that says you should only consider refinancing if the new interest rate will be at least 2 points under your existing rate? Perhaps several years ago that was wise advice, but since refinance costs have been falling recently, it may be time to look into it. Refinancing has a number of advantages that often make it worth the initial cost a few times over.
Benefits from Refinancing
You may be able to lower your interest rate (sometimes by a lot) and have smaller monthly payments with your refinanced loan. You also might be given the option of pulling out some of the equity in your house by "cashing out" some funds to remodel your home, consolidate debt, or take your family on a vacation. With reduced interest rates, you might also be able to build up home equity faster by switching to a shorter term mortgage.
Of course, you'll have some fees and expenses during your process of refinancing. You'll have to pay the same sort of fees as you did with your existing home loan. Included in your costs can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
Paying points can result in a better interest rate. When you pay (on average) three percent of the loan amount initially, the savings for the term of the refinanced mortgage loan can be substantial. You might be told that points may be tax deductible, but as tax regulations can be ever-changing, we urge you to consult a tax professional before considering this in your calculations.
One more cost that borrowers might consider is that a lower interest rate will lower the interest amount you'll be able to deduct on your federal income taxes. Call us at 478-474-4600 to help you do the math.
Most people find that the monthly savings quickly balance out the up-front expenses of a refinance. We can help you find out what your options are, considering the effect a refinance may have on your taxes, whether you are likely to sell your home in the next couple of years, and your available cash. Call us at 478-474-4600 to get started.