Is Refinancing Worth the Cost?
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Ever heard the old rule of thumb that states you should only refinance if the new interest rate is at least 2 points lower than your existing rate? That could have been valid a while back, but with the fact that refinancing has been costing less recently, it's a good time to think about a new mortgage loan! A refinance is often worth its cost several times over, considering the advantages that it brings, in addition to a reduced interest rate.
You could be able to lower your interest rate (sometimes significantly) and make smaller monthly payments with your refinanced mortgage loan. You may also be able to "cash out" a portion of your equity, which you may use to consolidate debts, add on to your home, or plan a vacation. You could be able to refinance to a shorter-term mortgage, giving you the ability to build your home equity faster.
Expenses and Fees
All of these advantages do cost something, though. When you refinance, you are paying for basically the same things you paid for at the time you obtained your original mortgage. Included in the list may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might consider paying points to get a reduced interest rate. If you pay (on average) 3% of the loan amount at the start, your savings for the term of the new mortgage can be great. We recommend that you consult with a tax professional before acting on rumors that any paid points can be deducted on your federal income taxes.
Speaking of taxes, when you reduce your interest rate, of course you will also be lowering the interest amount that you'll be able to deduct from your federal income taxes. This is one more cost that some borrowers consider. Call us at 714-970-9700 to help you do the math.
Ultimately, for most borrowers the total of initial costs to refinance will be made up soon in monthly savings. We can help you explore what your options are, considering the effect a refinance may have on your taxes, how likely you might be to sell 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? Give us a call at 714-970-9700.