When is Refinancing Worth it?
Ever heard the pearl of wisdom that says you should only consider refinancing if the new interest rate is at least two points lower than your current one? Maybe that was sound advice a number of years ago, but as refinance costs have been getting lower, it could be a good time to take a serious look. Refinancing has some advantages that can make it worth the initial cost many times over.
You could be able to bring down your interest rate (sometimes by a lot) and reduce your mortgage payment amount with a refinanced mortgage. You may also be able to "cash out" some of your equity, which you can use to consolidate debt, make home improvements, or plan a vacation. With reduced interest rates, you might also get the chance to build up home equity faster by switching to a shorter term mortgage loan.
Fees and Expenses
All these advantages do cost something, though. You will pay the same kinds of expenses and fees as with your current mortgage. These may include settlement costs, appraisal fees, lender's title insurance, underwriting fees, and so on.
Do the Math
You might look into paying points to reduce your interest rate. Your savings on the life of the mortgage loan may be substantial if you've paid up front about three percent of the new loan balance. Please consult with a tax professional before acting on advice that the paid points can be deducted on your federal income taxes.
One more expense that borrowers might take into account is that a reduced rate of interest will lower the interest amount you'll be able to deduct on your taxes. We can help you do the math!
All things considered, for most borrowers the total of up-front costs to refinance are made up soon in savings each month. We'll help you determine what program is ideal for you, considering your cash on hand, the likelihood of selling your residence in the near future, and the effect refinancing might have on your taxes.