Weighing the Options of Refinancing
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Have you ever heard the old rule of thumb that states you should only consider refinancing if your new interest rate will be at least two points lower than your current one? That may have been accurate a while back, but with the fact that refinancing has been costing less in recent years, it is a good time to consider a new mortgage loan! Refinancing has various benefits that can make it worth the initial cost several times over.
When you refinance, you might be able to reduce the interest rate and mortgage payment amount, perhaps significantly. You could also be able to "cash out" a portion of your equity, which you may use to take care of higher interest debts, add on to your home, or plan a vacation. You may have the option to refinance to a shorter-term mortgage loan, giving you the ability to build your home equity quicker.
Expenses and Fees
As you probably expect, you'll have to pay for your process of refinancing. You'll pay the same types of fees as you did with your present home loan. Included in your costs may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might offer to pay points (prepaid interest) to attain a lower interest rate. If you pay (on average) three percent of the loan amount up front, the savings for the term of the new loan can be substantial. You might be told that these points can be tax deductible, but since tax regulations can be difficult to keep up with, we urge you to consult your tax professional before considering this in your calculations.
An additional expense that a borrower may take into account is that a lower interest rate will reduce the interest amount you will be able to deduct on your taxes. Call us at (260) 338-2561 to help you do the math.
Most people find that the monthly savings quickly outweigh the up-front cost of a refinance. We can help you figure out what your options are, considering the effect a refinance could have on your taxes, how likely you might be to sell in the near future, and your available cash. Call us at (260) 338-2561 to get started.
Curious about refinancing? Give us a call: (260) 338-2561.