When is Refinancing Worth it?
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Ever hear the old rule of thumb that says you should only consider refinancing if your new interest rate will be at least two points lower than your present one? That may have been valid years ago, but with the fact that refinancing has been costing less recently, it's never the wrong time to explore the options of a new mortgage! Refinancing your mortgage loan has a variety of advantages that will often make it worth the up-front cost a few times over.
Advantages of Refinancing
When you refinance, you could be able to reduce the interest rate and mortgage payment amount, sometimes by a lot. You also may have the option of tapping into your home equity by "cashing out" some money to remodel your home, consolidate debt, or plan a special vacation. You may be able to refinance to a shorter-term mortgage loan, enabling you to build your home equity quicker.
The Cost
All of these benefits do come with some expense, though. With your refinance, you're paying for most of the same things you were charged for at the time you got your current mortgage. Included in your costs will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might offer to pay points (prepaid interest) to attain a better rate of interest. The money you will save on the life of the mortgage may be significant if you have paid up front about 3% of the new loan total. Please consult with a tax professional before acting on rumors that any paid points may be deducted on your taxes.
An additional cost that borrowers might consider is that a reduced rate of interest will lower the interest amount you will be able to deduct from your federal income taxes. Call us at (303) 369-5033 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 figure out what your options are, considering the effect a refinance might 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 (303) 369-5033 to get started.
Want to know more about refinancing? Call us: (303) 369-5033 .