When is Refinancing Worth it?
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It has been said that only if your new interest will be at least two points under your current rate, should you refinance your loan. Maybe that was sound advice a number of years ago, but since refinance costs have been getting lower, it may be a good time to look into it. A refinance is often worth its cost many times over, factoring in the advantages that may come, in addition to a lower interest rate.
Advantages of Refinancing
When you refinance, you might have the ability to reduce the interest rate and monthly mortgage payment amount, perhaps by a lot. Additionally, you may be given the option of pulling out some of your home equity by "cashing out" some money to remodel your home, consolidate debt, or take your family on a vacation. With lower interest rates, you may also be able to build up home equity faster by changing to a shorter term loan.
All of these advantages do cost something, though. You'll pay the same kinds of fees as you did with your present home loan. Among these can be settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.
Doing the Math
You might offer to pay discount points (prepaid interest) to attain a better interest rate. Your savings over the life of the mortgage loan may be substantial if you've paid up front about 3% of the new loan balance. You may hear that these points may be tax deductible, but as tax regulations are ever-changing, please consult your tax professional before making any decisions based on this.
An additional expense that a borrower might take into account is that a reduced rate of interest will lower the interest amount you will be able to deduct from your federal income taxes. We can help you do the math! Call us at 408.399.0103.
Ultimately, for most borrowers the amount of initial costs to refinance are paid back very quickly in monthly savings. We can help you figure out your options, considering the effect a refinance could have on your taxes, whether you are likely to sell your home in the near future, and your available cash. Call us at 408.399.0103 to get you started.