When is Refinancing Worth it?
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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 2 points below your existing rate? That might have been valid a while back, but with refinancing dropping in cost recently, it is never the wrong time to think about a new mortgage! A refinance may be worth its cost several times over, because of the advantages that it brings, as well as a reduced interest rate.
You may be able to lower your interest rate (sometimes significantly) and reduce your mortgage payment amount with your refinanced mortgage. You might also be able to "cash out" a portion of the built-up equity in your home, which you can use to take care of higher interest debt, make home improvements, or plan a vacation. You might be able to refinance into a shorter-term mortgage loan, giving you the ability to build your equity faster.
Fees and Expenses
Of course, you will have some fees and expenses during the process of refinancing. With your refinance, you are paying for basically the same things you were charged for at the time you obtained your original mortgage. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Do the Math
You could need to pay discount points (prepaid interest) to gain a better interest rate. If you pay (on average) three percent of the mortgage loan amount up front, the savings for the life of the refinanced mortgage can be great. You may hear that these points may be deducted on your income taxes, but since tax regulations can be ever-changing, please consult a tax professional before making any decisions based on this.
Another expense that a borrower may consider is that a reduced rate of interest will reduce the interest amount you will deduct on your federal income taxes. We can help you do the math! Call us at (707) 252-2700.
In the end, for most borrowers the amount of initial costs to refinance are paid back soon in monthly savings. We can help you figure out what your options are, considering the effect a refinance might have on your taxes, how likely you might be to sell in the next couple of years, and your cash on hand. Call us at (707) 252-2700 to get started.
Curious about refinancing your home? Call us at (707) 252-2700.