Weighing the Options of Refinancing
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Have you ever heard the old rule of thumb that says you should only refinance if the new interest rate is at least 2 points lower than your existing rate? Perhaps that was sound advice a number of years ago, but as refinance costs have been falling recently, it may be time to take a serious look. A refinance may be worth its cost several times over, because of the advantages that it brings, in addition to a lower interest rate.
Advantages of Refinancing
You might be able to lower your interest rate (sometimes significantly) and make smaller mortgage payments with your refinanced mortgage loan. You also might be given the option of tapping into the equity in your home by "cashing out" a sum of money to remodel your home, consolidate debt, or plan a special vacation. You could be able to refinance to a shorter-term mortgage program, enabling you to build up your home equity quicker.
Expenses and Fees
As you probably know, you'll have to pay for your the refinance process. With your refinance, you are paying for most of the same things you paid for at the time you obtained your existing mortgage loan. Among these will be settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.
Doing the Math
You might consider paying points to get a better interest rate. Your savings on the life of the loan could be significant if you have paid up front about three percent of the new loan balance. You may be told that points can be tax deductible, but as tax regulations are difficult to keep up with, please consult with a tax professional before considering this in your calculations.
Speaking of taxes, when your interest rate is lowered, naturally you will also be lowering the paid interest amount that you will be able to deduct from your taxes. This is one more cost that borrowers take into consideration. Call us at 972.798.2110 to help you do the math.
In the end, for most people the amount of up-front costs to refinance will be paid back soon in savings each month. We'll work with you to determine which program is ideal for you, taking into account your cash on hand, how likely you are to sell your residence in the next few years, and the effect refinancing could have on your taxes. Call us at 972.798.2110 to get started.
Want to know more about refinancing? Call us at 972.798.2110.