When is Refinancing Worth it?

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Ever heard the pearl of wisdom that states you should only refinance if your new interest rate is at least 2 points under your existing rate? Perhaps that was sound advice a number of years ago, but as refinance costs have been falling recently, it could be a good time to take a serious look. Refinancing your mortgage loan has a variety of advantages that can make it worth the up-front cost many times over.

Benefits

You might be able to bring down your interest rate (sometimes substantially) and have smaller mortgage payments with your refinanced mortgage. You may also have the option to "cash out" a portion of your home equity, that you may use to take care of higher interest debt, improve your home, or take a vacation. You could be able to refinance into a shorter-term mortgage program, enabling you to add to your equity faster.

The Cost

Of course, you'll have some fees and expenses during the process of refinancing. You'll have to pay the same sort of fees as you did with your existing mortgage loan. Among these might be settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.

Do the Math

You might offer to pay points (prepaid interest) to get a lower rate of interest. Your savings on the life of the loan may be significant if you have paid up front about three percent of the new loan balance. You may be told that these points may be deducted on your income taxes, but because tax regulations can be difficult to keep up with, we urge you to consult with your tax professional before making any decisions based on this.

One more expense that a borrower might take into account is that a reduced rate of interest will reduce the interest amount you will deduct from your taxes. Call us at (707) 252-2700 to help you do the math.

Most people find that the monthly savings outweigh the up-front expenses of a refinance. We will help you figure out what program is the ideal fit for you, considering your cash on hand, how likely you are to sell your home in the next few years, and how refinancing may effect your taxes. Call us at (707) 252-2700 to get started.

Curious about refinancing your home? Give us a call at (707) 252-2700.

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