When is Refinancing Worth it?
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It has been said that only when your new interest will be at least two points lower, should you refinance your loan. That could have been accurate years ago, but since refinancing has been costing less over the last few years, it is never the wrong time to consider a new loan! Refinancing your mortgage has some benefits that will often make it worth the up-front expenditure a few times over.
Advantages of Refinancing
You could be able to lower your interest rate (sometimes substantially) and reduce your mortgage payment amount with a refinanced mortgage loan. You may also have the ability to "cash out" a portion of your equity, which you will be able use to consolidate debts, improve your home, or plan a vacation. You might have the option to refinance into a shorter-term mortgage loan, enabling you to add to your home equity quicker.
Fees and Expenses
Of course, you will have some fees and expenses during the process of refinancing. You'll pay the same types of expenses and fees as with your existing mortgage. Included in the list will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might need to pay discount points (prepaid interest) to attain a more favorable interest rate. The amount you'll save over the life of the mortgage loan may be substantial if you have paid up front about 3% of the new loan total. You may be told that these points may be tax deductible, but as tax regulations are difficult to keep up with, please consult a tax professional before making decisions based on this.
Another cost that borrowers may consider is that a lower interest rate will lower the interest amount you'll deduct from your taxes. Call us at to help you do the math.
In the end, for most borrowers the amount of initial costs to refinance are made up soon in savings each month. We'll work with you to find out which loan program is the best fit for you, considering your cash on hand, the likelihood of selling your residence in the next few years, and how refinancing can effect your taxes. Call us at to get you started.
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