When is Refinancing Worth it?
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Have you ever heard the pearl of wisdom that says you should only refinance if your new interest rate is at least 2 points below your existing one? That might have been true years ago, but since refinancing has been costing less recently, it's a good time to think about a new loan! Refinancing your mortgage loan has a number of benefits that can make it worth the up-front cost a few times over.
You might be able to bring down your interest rate (sometimes by a lot) and make smaller monthly payments with your refinanced mortgage. You might also be able to "cash out" a portion of the built-up equity in your home, that you can use to take care of higher interest debts, improve your home, or plan a vacation. With lower rates, you might also be able to build your home equity more quickly by switching to a shorter term mortgage loan.
Fees and Expenses
All of these advantages do come with some expense, though. When you refinance, you're paying for a lot of the same things you were charged for during your original mortgage. Among these can be settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.
You could have to make a penalty payment for refinancing your existing mortgage loan too quickly. This depends on the terms of your existing loan. However, some of these penalties apply just to the first few years of the loan. We'll help you sort through the details: contact us at .
Doing the Math
You might need to pay points (prepaid interest) to get a more favorable interest rate. When you pay (on average) 3% of the loan amount at the start, the savings for the term of the refinanced mortgage loan can be great. You might have heard that these points may be tax deductible, but since tax regulations are ever-changing, we urge you to consult your tax professional before making any decisions based on this.
One more expense that borrowers might take into account is that a reduced interest rate will reduce the interest amount you will deduct from your federal income taxes. We can help you do the math! Call us at .
Ultimately, for most the total of initial costs to refinance will be paid back very quickly in savings each month. We can help you find out your options, considering the effect a refinance may have on your taxes, whether you are likely to sell your home in the next couple of years, and your available cash. Call us at to get you started.
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