When is Refinancing Worth it?
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Have you ever heard the old rule of thumb that states you should only refinance if your new interest rate will be at least two points below your present rate? Maybe that was sound advice several years ago, but since refinance costs have been getting lower, it could be a good time to look into it. A refinance can be worth its cost several times over, factoring in the advantages that it brings, as well as a reduced interest rate.
Advantages of Refinancing
You might be able to lower your interest rate (sometimes by a lot) and have smaller monthly payments with your refinanced loan. You could also be able to "cash out" a portion of the built-up equity in your home, which you can use to take care of higher interest debt, add on to your home, or take a vacation. With reduced rates, you may also get the chance to build up home equity faster by changing to a shorter term loan.
Expenses and Fees
All of these advantages do cost something, though. You will pay the same types of expenses and fees as you did with your current mortgage loan. Among these will be settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.
Doing the Math
Paying points can result in a lower interest rate. Your savings over the life of the mortgage loan could be substantial if you've paid up front about three percent of the new loan balance. You may be told that the points may be tax deductible, but because tax regulations can be difficult to keep up with, we urge you to consult with a tax professional before considering this in your calculations.
An additional expense that a borrower might consider is that a reduced rate of interest will lower the interest amount you will deduct on your taxes. We can help you do the math! Call us at 714-970-9700.
Most borrowers find that the monthly savings outweigh the initial cost of a refinance. 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 714-970-9700 to get you started.
Want to know more about refinancing your home? Call us: 714-970-9700.