Weighing the Options of Refinancing

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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 2 points lower than your current rate? Perhaps several years ago that was sage advice, but since refinance costs have been falling recently, it may be a good time to look into it. A refinance may be worth its cost several times over, factoring in the advantages that come, as well as a reduced interest rate.


When you refinance, you may be able to lower your interest rate and mortgage payment amount, sometimes by a lot. Additionally, you may be given the option of tapping into the equity in your property by "cashing out" some funds to fix up your home, consolidate debt, or plan a special vacation. You may be able to refinance into a shorter-term mortgage, enabling you to add to your home equity quicker.

The Cost

Of course, you'll have to pay for the the refinance process. When you refinance, you're paying for basically the same things you were charged for during your existing mortgage. Among these can be settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.

Do the Math

Paying points can result in a lower interest rate. The amount you'll save over the life of the mortgage might be significant if you have paid up front about three percent of the new loan total. You may have heard that points can be deducted on your income taxes, but as tax regulations are difficult to keep up with, we urge you to consult a tax professional before making decisions based on this.

An additional expense that a borrower may consider is that a reduced rate of interest will lower the interest amount you'll deduct on your federal income taxes. Call us at 714-970-9700 to help you do the math.

All things considered, for most borrowers the amount of initial costs to refinance will be paid back very quickly 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 may be to sell in the next couple of years, and your cash on hand. Call us at 714-970-9700 to get started.

Curious about refinancing your home? Call us at 714-970-9700.

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