When is Refinancing Worth it?
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Ever heard the pearl of wisdom that says you should only consider refinancing if the new interest rate is at least two points lower than your existing rate? That could have been good advice years ago, but since refinancing has been costing less recently, it is never the wrong time to think about a new mortgage! Refinancing your loan has a variety of benefits that will often make it worth the up-front cost many times over.
Benefits from Refinancing
When you refinance, you might have the ability to reduce your interest rate and monthly mortgage payment amount, sometimes by a lot. You also might have the option of pulling out some of the equity in your house by "cashing out" some funds to renovate your home, consolidate debt, or take your family on a vacation. You might have the option to refinance into a shorter-term mortgage program, enabling you to build up your home equity faster.
Expenses and Fees
All of these benefits do come with some expense, though. You'll be charged the same kinds of fees as with your existing home loan. Included in your costs will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You could offer to pay discount points (prepaid interest) to gain a better rate of interest. When you pay (on average) 3% of the mortgage loan amount at the start, the savings for the life of the refinanced mortgage loan can be great. Please consult with a tax professional before acting on rumors that these points paid may be deducted on your federal income taxes.
An additional expense that a borrower may take into account is that a reduced interest rate will reduce the interest amount you'll deduct on your federal income taxes. Call us at 714-970-9700 to help you do the math.
In the end, for most borrowers the amount of initial costs to refinance are made up very quickly in savings each month. We'll work with you to determine what mortgage loan program is perfect for you, considering your cash on hand, how likely you are to sell your house in the near future, and how refinancing might effect your taxes. Call us at 714-970-9700 to get you started.
Want to know more about refinancing your home? Call us: 714-970-9700.