Weighing the Options of Refinancing
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It has been said that only when your new interest is at least 2 points below your current rate, should you refinance your loan. Maybe several years ago that was sage advice, but since refinance costs have been falling recently, it may be a good time to take a serious look. Refinancing your mortgage has some benefits that often make it worth the initial expenditure several times over.
Benefits
You could be able to bring down your interest rate (sometimes by a lot) and reduce your monthly mortgage payment amount with your refinanced loan. Additionally, you might have the option of pulling out some of the equity in your house by "cashing out" some money to fix up your home, consolidate debt, or plan a special vacation. You could be able to refinance to a shorter-term mortgage program, giving you the ability to add to your equity quicker.
The Cost
All of these advantages do cost something, though. With your refinance, you're paying for many of the same things you were charged for during your original mortgage loan. Included in the list may 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 get a lower interest rate. The amount you'll save over the life of the mortgage could be substantial if you have paid up front about 3% of the new loan total. You might have heard that points can be deducted on your income taxes, but as tax regulations are difficult to keep up with, please speak with your tax professional before depending on this.
One more expense that a borrower may take into account is that a reduced rate of interest will lower the interest amount you'll deduct from your federal income taxes. Call us at to help you do the math.
Most borrowers find that the savings per month quickly balance out the up-front expenses of refinancing. We can help you explore what your options are, considering the effect a refinance could have on your taxes, how likely you might be to sell in the next couple of years, and your cash on hand. Call us at to get you started.
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