Weighing the Options of Refinancing
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Ever heard the old rule of thumb that states you should only consider refinancing if the new interest rate is at least two points below your current one? Perhaps that was good advice several years ago, but since refinance costs have been getting lower, it could be time to look into it. A refinanced mortgage loan can be worth its cost several times over, because of the benefits that it brings, as well as a reduced interest rate.
Benefits from Refinancing
When you refinance, you may have the ability to reduce the interest rate and monthly payment amount, perhaps significantly. Additionally, you could have the option of tapping into your home equity by "cashing out" some money to renovate your home, consolidate debt, or plan a special vacation. With lower rates, you might also get the chance to build your home equity more quickly by moving to a shorter term loan.
Fees and Expenses
Of course, you will have to pay for the process of refinancing. With your refinance, you are paying for many of the same things you were charged for at the time you got your original mortgage. Included in your costs will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
Paying discount points can get you a better interest rate. If you pay (on average) 3% of the mortgage loan amount up front, the savings for the life of the new mortgage can be great. You may hear that these points can be deducted on your income taxes, but since tax regulations are ever-changing, we urge you to consult your tax professional before considering this in your calculations.
Another thing about taxes is that if your interest rate is lowered, of course you'll also be lowering the interest amount that you can deduct on your federal income taxes. This is another expense that borrowers take into consideration. Call us at (707) 252-2700 to help you do the math.
All things considered, for most the total of up-front costs to refinance will be paid back soon in monthly savings. We will work with you to figure out which program is ideal for you, taking into account your cash on hand, how likely you are to sell your home in the next few years, and the effect refinancing will probably have on your taxes. Call us at (707) 252-2700 to get you started.
Curious about refinancing your home? Give us a call at (707) 252-2700.