When is Refinancing Worth it?

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Ever hear the old rule of thumb that says you should only consider refinancing if your new interest rate will be at least two points below your existing rate? Perhaps that was good advice a number of years ago, but since refinance costs have been falling recently, it could be time to look into it. Refinancing has a variety of benefits that can make it worth the up-front cost several times over.

Benefits

You could be able to bring down your interest rate (sometimes substantially) and reduce your monthly mortgage payment amount with your refinanced mortgage loan. You could also have the ability to "cash out" some of the built-up equity in your residence, which you may use to take care of higher interest debt, improve your home, or take a vacation. With reduced interest rates, you may also be able to build your home equity more quickly by changing to a shorter term loan.

Expenses and Fees

All these advantages do cost something, though. You will have to pay the same sort of expenses and fees as you did with your present mortgage. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

Doing the Math

You might offer to pay discount points (prepaid interest) to get a lower rate of interest. The amount you will save over the life of the mortgage loan could be significant if you have paid up front about three percent of the new loan total. We recommend that you consult with a tax professional before acting on hear-say that these paid points may be deducted on your taxes.

Speaking of taxes, when you reduce your interest rate, of course you'll also be reducing the paid interest amount that you'll be able to deduct from your taxes. This is another expense that borrowers take into account. Call us at (260) 338-2561 to help you do the math.

Ultimately, for most borrowers the total of initial costs to refinance are paid back very quickly in savings each month. We'll work with you to figure out what loan program is best for you, considering your cash on hand, the likelihood of selling your residence in the near future, and what effect refinancing may have on your taxes. Call us at (260) 338-2561 to get you started.

Curious about refinancing your home? Call us: (260) 338-2561.

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