When is Refinancing Worth it?
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Have you ever heard the pearl of wisdom that says you should only consider refinancing if your new interest rate will be at least two points below your existing rate? Maybe several years ago that was good advice, but as refinance costs have been getting lower, it could be time to take a serious look. Refinancing has a variety of benefits that will often make it worth the up-front expenditure several times over.
Advantages of Refinancing
When you refinance, you may be able to lower the interest rate and monthly mortgage payment amount, sometimes by a lot. Additionally, you might be given the option of pulling out some of your home equity by "cashing out" a sum of money to fix up your home, consolidate debt, or take your family on a vacation. You might have the option to refinance to a shorter-term mortgage loan, giving you the ability to add to your home equity faster.
Of course, you will have to pay for your the refinance process. When you refinance, you are paying for basically the same things you paid for during your original 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 need to pay discount points (prepaid interest) to gain a lower rate of interest. When you pay (on average) three percent of the mortgage loan amount up front, your savings for the term of the new loan can be significant. You may be told that the points may be tax deductible, but because tax regulations can be ever-changing, please speak with your tax professional before considering this in your calculations.
Speaking of taxes, once your interest rate is reduced, naturally you'll also be lowering the paid interest amount that you'll be able to deduct on your federal income taxes. This is one more expense that some borrowers consider. We can help you do the math! Call us at 714 969-3112.
In the end, for most people the amount of initial costs to refinance are paid back soon in savings each month. We will help you determine what mortgage loan program is right for you, taking into account your cash on hand, how likely you are to sell your residence in the next few years, and how refinancing could effect your taxes. Call us at 714 969-3112 to get you started.
Curious about refinancing your home? Call us at 714 969-3112.