When is Refinancing Worth it?
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Ever heard the old rule of thumb that says you should only refinance if the new interest rate is at least 2 points below your present one? Maybe several years ago that was wise advice, but since refinance costs have been falling recently, it may be time to look into it. Refinancing your loan has a variety of benefits that can make it worth the up-front cost several times over.
You might be able to lower your interest rate (sometimes substantially) and reduce your monthly payment amount with a refinanced mortgage. You might also have the option to "cash out" a portion of your equity, that you are able use to consolidate debt, add on to your home, or take a vacation. You might be able to refinance into a shorter-term mortgage program, enabling you to build your home equity faster.
Fees and Expenses
All these benefits do come with some expense, though. With your refinance, you are paying for basically the same things you paid for when you obtained your existing mortgage. Included in your costs will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might need to pay discount points (prepaid interest) to get a better rate of interest. Your savings over the life of the loan might be significant if you have paid up front about 3% of the new loan total. We recommend that you talk to a tax professional before acting on hear-say that any points paid can be deducted on your federal income taxes.
Speaking of taxes, when your interest rate is reduced, it follows that you'll also be lowering the interest amount that you'll be able to deduct from your taxes. This is another expense that borrowers take into account. Call us at 305-800-3863 to help you do the math.
Ultimately, for most the total of initial costs to refinance will be made up very quickly in savings each month. We will work with you to determine which program is ideal for you, considering your cash on hand, how likely you are to sell your house in the near future, and what effect refinancing might have on your taxes. Call us at 305-800-3863 to get you started.
Want to know more about refinancing? Give us a call at 305-800-3863.