Weighing the Options of Refinancing
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Some have said that only if your new interest is at least 2 points below your current rate, should you refinance your loan. That might have been good advice years ago, but since refinancing has been costing less recently, it's a good time to consider a new loan! A refinance can be worth its cost many times over, because of the advantages that it brings, in addition to a reduced interest rate.
Advantages of Refinancing
When you refinance, you may be able to reduce the interest rate and mortgage payment amount, sometimes considerably. You could also be able to "cash out" a portion of your equity, that you will be able use to take care of higher interest debt, make home improvements, or finance a vacation. With lower interest rates, you may also get the chance to build your home equity faster by changing to a shorter term loan.
Fees and Expenses
All of these advantages do cost something, though. With your refinance, you're paying for basically the same things you were charged for during your original mortgage loan. Among these may be settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and so on.
Doing the Math
You might investigate paying points to reduce your interest rate. When you pay (on average) three percent of the loan amount at the start, the savings for the term of the new mortgage loan can be significant. You may have heard that the points can be tax deductible, but because tax regulations can be ever-changing, we urge you to consult with a tax professional before considering this in your calculations.
Another thing about taxes is that when your interest rate is lowered, of course you'll also be reducing the interest amount that you'll be able to deduct on your federal income taxes. This is one more cost that borrowers take into account. Call us at 719-425-2226 to help you do the math.
Ultimately, for most borrowers the amount of up-front 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 could have on your taxes, whether you are likely to sell your home in the next couple of years, and your money on hand. Call us at 719-425-2226 to get started.
Want to know more about refinancing your home? Give us a call at 719-425-2226.