When is Refinancing Worth it?
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Some have said that only in the case your new interest is at least 2 points below your current rate, should you refinance your mortgage. That may have been accurate a while back, but as refinancing has been costing less in recent years, it is a good time to think about a new mortgage loan! A refinance is often worth its cost several times over, considering the benefits that come, in addition to a lower interest rate.
When you refinance, you could be able to reduce your interest rate and monthly mortgage payment , perhaps significantly. You may 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 debts, add on to your home, or take a vacation. With reduced interest rates, you may also get the chance to build your home equity more quickly by moving to a shorter-term mortgage.
Expenses and Fees
All these benefits do come with some expense, though. When you refinance, you are paying for basically the same things you paid for during your current mortgage loan. Included in your costs will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Do the Math
You might offer to pay discount points (prepaid interest) to get a better rate of interest. Your savings on the life of the mortgage loan may be significant if you have paid up front about 3% of the new loan balance. You may hear that the points can be tax deductible, but since tax regulations can be ever-changing, we urge you to consult with a tax professional before considering this in your calculations.
One more cost that a borrower might take into account is that a reduced interest rate will lower the interest amount you'll be able to deduct on your taxes. Call us at (707) 252-2700 to help you do the math.
Most people find that the monthly savings quickly balance out the initial cost of a refinance. We will help you figure out which program is the right fit for you, looking at your cash on hand, how likely you are to sell your residence in the next few years, and the effect refinancing might have on your taxes. Call us at (707) 252-2700 to get started.
Want to know more about refinancing? Call us: (707) 252-2700.