When is Refinancing Worth it?

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It has been said that only when your new interest is at least 2 points below your current rate, should you refinance your mortgage. Maybe several years ago that was good advice, but since refinance costs have been getting lower, it may be time to take a serious look. A refinance is often worth its cost several times over, factoring in the advantages that it brings, in addition to a reduced interest rate.

Benefits from Refinancing

You might be able to lower your interest rate (sometimes substantially) and reduce your monthly payment amount with a refinanced loan. You could also have the option to "cash out" a portion of your home equity, that you are able use to take care of higher interest debts, add on to your home, or finance a vacation. With lower interest rates, you might also get the chance to build your home equity more quickly by switching to a shorter term loan.

Fees and Expenses

All of these benefits do come with some expense, though. With your refinance, you're paying for a lot of the same things you were charged for at the time you obtained your existing mortgage. Among these will be settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.

Doing the Math

Paying discount points can get you a better interest rate. Your savings over the life of the loan may be substantial if you have paid up front about 3% of the new loan balance. Please consult with a tax professional before acting on rumors that the paid points can be deducted on your federal income taxes.

Another expense that borrowers might take into account is that a reduced rate of interest will reduce the interest amount you will deduct from your taxes. Call us at 719-425-2226 to help you do the math.

Most borrowers find that the savings each month quickly outweigh the up-front expenses of refinancing. We can help you find out your options, 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 money on hand. Call us at 719-425-2226 to get you started.

Curious about refinancing? Give us a call at 719-425-2226.