When is Refinancing Worth it?
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Have you ever heard the pearl of wisdom that states you should only consider refinancing if your new interest rate will be at least 2 points under your current rate? That might have been valid a while back, but as refinancing has been costing less over the last few years, it is never the wrong time to think about a new mortgage loan! Refinancing your loan has a variety of advantages that will often make it worth the up-front expenditure many times over.
Advantages of Refinancing
When you refinance, you might be able to reduce your interest rate and monthly mortgage payment amount, perhaps by a lot. You may also be able to "cash out" a portion of your home equity, which you are able use to take care of higher interest debt, make home improvements, or finance a vacation. You may be able to refinance into a shorter-term mortgage loan, giving you the ability to build up your equity faster.
Fees and Expenses
As you probably expect, you will have to pay for your the refinance process. When you refinance, you're paying for basically the same things you paid for during your existing mortgage. Included in the list might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might investigate paying points to get a reduced interest rate. If you pay (on average) three percent of the loan amount up front, the savings for the term of the refinanced mortgage loan can be substantial. You may have heard that points may be deducted on your income taxes, but because tax regulations can be ever-changing, please consult with a tax professional before considering this in your calculations.
One more expense that a borrower might take into account is that a lower rate of interest will lower the interest amount you'll be able to deduct from your taxes. We can help you do the math! Call us at .
In the end, for most people the total of up-front costs to refinance will be paid back very quickly in monthly savings. We'll work with you to figure out what mortgage loan program is perfect for you, looking at your cash on hand, the likelihood of selling your home in the next few years, and the effect refinancing will have on your taxes. Call us at to get you started.
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