Is Refinancing Worth the Cost?

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Ever hear the old rule of thumb that says you should only refinance if the new interest rate is at least two points below your current one? Maybe several years ago that was sage advice, but as refinance costs have been getting lower, it could be time to take a serious look. A refinanced mortgage loan is often worth its cost many times over, factoring in the advantages that can come, along with a reduced interest rate.

Advantages

You could be able to bring down your interest rate (sometimes by a lot) and reduce your monthly mortgage payment amount with a refinanced loan. You could also be able to "cash out" some of the built-up equity in your home, that you can use to consolidate debt, add on to your home, or take a vacation. You could have the option to refinance to a shorter-term mortgage loan, giving you the ability to build up your equity quicker.

Expenses and Fees

All of these advantages do come with some expense, though. You'll have the same types of fees as with your present mortgage loan. Among these may be settlement costs, an appraisal, lender's title insurance, underwriting fees, and others.

Do the Math

You might look into paying points to reduce your interest rate. When you pay (on average) 3% of the loan amount at the start, the savings for the term of the new loan can be great. You may have heard that points can be tax deductible, but as tax regulations are difficult to keep up with, please consult with a tax professional before making any decisions based on this.

Speaking of taxes, once your interest rate is lowered, naturally you will also be lowering the interest amount that you'll be able to deduct from your federal income taxes. This is another cost that some borrowers take into account. Call us at 719-425-2226 to help you do the math.

Ultimately, for most the amount of initial costs to refinance will be made up very quickly in monthly savings. We'll help you determine what mortgage loan program is best for you, considering your cash on hand, the likelihood of selling your home in the next few years, and what effect refinancing may have on your taxes. Call us at 719-425-2226 to get you started.

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


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