Is Refinancing Worth the Cost?

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Have you ever heard the old rule of thumb that says you should only consider refinancing if your new interest rate is at least two points below your current one? Perhaps that was good advice a number of years ago, but as refinance costs have been getting lower, it may be time to look into it. Refinancing your mortgage loan has some advantages that will often make it worth the up-front cost many times over.

Benefits

You could be able to lower your interest rate (sometimes by a lot) and have smaller monthly payments with your refinanced mortgage. You might also be able to "cash out" a portion of the built-up equity in your home, that you will be able use to take care of higher interest debt, improve your home, or finance a vacation. With reduced interest rates, you might also get the chance to build up home equity faster by changing to a shorter-term mortgage.

Expenses and Fees

All of these benefits do cost something, though. With your refinance, you are paying for many of the same things you were charged for during your original mortgage. These may include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and others.

Doing the Math

You might offer to pay discount points (prepaid interest) to attain a lower interest rate. If you pay (on average) 3% of the mortgage loan amount at the start, your savings for the term of the new mortgage can be significant. You might be told that the points can be tax deductible, but since tax regulations can be difficult to keep up with, please speak with your tax professional before depending on this.

Speaking of taxes, once you bring down your interest rate, of course you'll also be lowering the interest amount that you'll be able to deduct from your taxes. This is another cost that some borrowers take into consideration. Call us at (434) 975-5626 to help you do the math.

Most borrowers find that the savings each month balance out the up-front expenses of a refinance. We will work with you to determine what mortgage loan program is ideal for you, taking into account your cash on hand, the likelihood of selling your home in the next few years, and how refinancing might effect your taxes. Call us at (434) 975-5626 to get you started.

Want to know more about refinancing your home? Give us a call: (434) 975-5626.

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