When is Refinancing Worth it?
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Ever heard the pearl of wisdom that says you should only consider refinancing if your new interest rate is at least 2 points below your current rate? Perhaps that was sound advice a number of years ago, but since refinance costs have been falling recently, it may be time to take a serious look. Refinancing has a number of benefits that often make it worth the up-front cost many times over.
Advantages of Refinancing
When you refinance, you could be able to reduce the interest rate and monthly payment , sometimes significantly. You may also have the option to "cash out" some of the built-up equity in your residence, that you will be able use to take care of higher interest debts, add on to your home, or plan a vacation. You could be able to refinance to a shorter-term mortgage program, giving you the ability to add to your equity faster.
Expenses and Fees
All these advantages do come with some expense, though. You will have to pay the same kinds of expenses and fees as with your present mortgage loan. Among these will be settlement costs, an appraisal, lender's title insurance, underwriting fees, and others.
Doing the Math
You might need to pay points (prepaid interest) to attain a more favorable interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the term of the new loan can be substantial. You might hear that these points may be tax deductible, but as tax regulations are ever-changing, please consult a tax professional before considering this in your calculations.
Speaking of taxes, once your interest rate is lowered, naturally you'll also be reducing the paid interest amount that you'll be able to deduct from your federal income taxes. This is one more expense that borrowers take into account. Call us at (707) 252-2700 to help you do the math.
All things considered, for most the amount of up-front costs to refinance are paid back very quickly in monthly savings. We can help you figure out your options, considering the effect a refinance could have on your taxes, how likely you may be to sell in the near future, and your cash on hand. Call us at (707) 252-2700 to get started.
Want to know more about refinancing your home? Give us a call: (707) 252-2700.