When is Refinancing Worth it?
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It has been said that only when your new interest is at least two points under your current rate, should you refinance your loan. Perhaps several years ago that was wise advice, but since refinance costs have been falling recently, it could be a good time to take a serious look. A refinanced mortgage is often worth its cost several times over, factoring in the advantages that may come, in addition to a reduced interest rate.
You might be able to bring down your interest rate (sometimes by a lot) and reduce your mortgage payment amount with your refinanced loan. You may also be able to "cash out" a portion of the built-up equity in your home, that you can use to take care of higher interest debt, add on to your home, or plan a vacation. You could have the option to refinance into a shorter-term mortgage loan, giving you the ability to add to your equity quicker.
Fees and Expenses
Of course, you'll have some fees and expenses during the process of refinancing. You'll pay the same kinds of fees as with your existing mortgage. Included in your costs will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
Paying points can help you attain a better interest rate. Your savings on the life of the loan may be substantial if you have paid up front about three percent of the new loan balance. We recommend that you consult with a tax professional before acting on rumors that any paid points can be deducted on your taxes.
Another thing about taxes is that if you bring down your interest rate, of course you'll also be lowering the interest amount that you will be able to deduct on your federal income taxes. This is one more expense that borrowers take into account. Call us at (408) 540-0200 to help you do the math.
Most people find that the monthly savings quickly balance out the initial expenses of refinancing. We can help you explore your options, considering the effect a refinance may have on your taxes, how likely you may be to sell in the next couple of years, and your cash on hand. Call us at (408) 540-0200 to get started.
Curious about refinancing your home? Call us at (408) 540-0200.