When is Refinancing Worth it?
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Some have said that only when your new interest is at least 2 points lower, should you refinance your mortgage. Perhaps several years ago that was sage advice, but since refinance costs have been falling recently, it could be time to take a serious look. Refinancing has a variety of advantages that will often make it worth the up-front expenditure several times over.
You may be able to bring down your interest rate (sometimes substantially) and have smaller mortgage payments with your refinanced mortgage loan. You also might have the option of pulling out some of your home equity by "cashing out" some funds to remodel your home, consolidate debt, or take your family on a vacation. You might have the option to refinance to a shorter-term mortgage loan, enabling you to build your home equity quicker.
Expenses and Fees
Of course, you'll have to pay for the the refinance process. When you refinance, you are paying for many of the same things you were charged for during your existing mortgage 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 better interest rate. The amount you'll save on the life of the mortgage may be substantial if you have paid up front about 3% of the new loan balance. We recommend that you consult a tax professional before acting on advice that the paid points may be deducted on your federal income taxes.
Speaking of taxes, once you lower your interest rate, of course you will also be reducing the interest amount that you can deduct on your federal income taxes. This is one more cost that borrowers take into consideration. Call us at (260) 338-2561 to help you do the math.
Ultimately, for most borrowers the total of up-front costs to refinance are made up soon in savings each month. We'll help you figure out which loan program is right 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 (260) 338-2561 to get you started.
Want to know more about refinancing your home? Give us a call at (260) 338-2561.