Is Refinancing Worth the Cost?
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It has been said that only when your new interest is at least two points lower, should you refinance your loan. Maybe that was good advice several years ago, but as refinance costs have been getting lower, it could be time to take a serious look. Refinancing has a variety of benefits that will often make it worth the up-front expenditure several times over.
Benefits from Refinancing
When you refinance, you may be able to lower the interest rate and monthly payment , sometimes significantly. Additionally, you may be given the option of pulling out some of the equity in your home by "cashing out" a sum of money to fix up your home, consolidate debt, or take your family on a vacation. With reduced interest rates, you might also be able to build your home equity faster by changing to a shorter-term mortgage loan.
Fees and Expenses
All these advantages do cost something, though. You'll have the same kinds of fees as with your current mortgage. These can include settlement costs, an appraisal, lender's title insurance, underwriting fees, and others.
Doing the Math
Paying points can result in a better interest rate. When you pay (on average) three percent of the mortgage loan amount up front, the savings for the life of the refinanced mortgage loan can be significant. You might be told that points can be tax deductible, but since tax regulations are difficult to keep up with, we urge you to consult your tax professional before making decisions based on this.
Speaking of taxes, when you lower your interest rate, it follows that you will also be reducing the paid interest amount that you may deduct from your taxes. This is another expense that some borrowers take into account. Call us at (434) 975-5626 to help you do the math.
In the end, for most the amount of up-front costs to refinance are made up soon in savings each month. We will work with you to determine what mortgage loan program is the best fit for you, taking into account your cash on hand, how likely you are to sell your residence in the next few years, and what effect refinancing may have on your taxes. Call us at (434) 975-5626 to get started.
Want to know more about refinancing? Call us: (434) 975-5626.