When is Refinancing Worth it?
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It has been said that only when your new interest is at least 2 points lower, should you refinance your loan. That might have been true a while back, but with the fact that refinancing has been costing less in recent years, it is a good time to think about a new loan! A refinance is often worth its cost several times over, considering the advantages that may come, in addition to a lower interest rate.
Benefits
When you refinance, you could be able to lower your interest rate and monthly payment amount, perhaps by a lot. You may also have the ability to "cash out" a portion of the built-up equity in your home, that you may use to consolidate debt, improve your home, or finance a vacation. You might have the option to refinance into a shorter-term mortgage, giving you the ability to build your home equity quicker.
The Cost
Of course, you'll have to pay for the the refinance process. When you refinance, you're paying for many of the same things you paid for at the time you obtained your current mortgage. These could include settlement costs, an appraisal, lender's title insurance, underwriting fees, and others.
Doing the Math
You might offer to pay points (prepaid interest) to gain a better interest rate. The amount you will save on the life of the loan could be significant if you have paid up front about three percent of the new loan balance. You might hear that points may be tax deductible, but because tax regulations are difficult to keep up with, please consult a tax professional before considering this in your calculations.
Another thing about taxes is that once your interest rate is reduced, naturally you'll also be reducing the interest amount that you can deduct on your federal income taxes. This is one more expense that borrowers take into consideration. We can help you do the math! Call us at (707) 252-2700.
All things considered, for most the total of initial costs to refinance are made up very quickly in savings each month. We can help you figure out your options, considering the effect a refinance may have on your taxes, if you are likely to sell your home in the near future, and your cash on hand. Call us at (707) 252-2700 to get you started.
Curious about refinancing? Call us at (707) 252-2700.