Is Refinancing Worth the Cost?
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Have you ever heard the old rule of thumb that says you should only refinance if the new interest rate will be at least two points below your current rate? That could have been good advice a while back, but with refinancing dropping in cost in recent years, it's never the wrong time to think about a new mortgage! Refinancing your mortgage has a variety of advantages that can make it worth the up-front expenditure many times over.
You might be able to lower your interest rate (sometimes significantly) and have smaller monthly payments with your refinanced loan. You might also have the ability to "cash out" a portion of the built-up equity in your home, which you are able use to take care of higher interest debts, make home improvements, or take a vacation. With lower rates, you may also be able to build up home equity faster by moving to a shorter-term loan.
Expenses and Fees
All of these benefits do come with some expense, though. When you refinance, you are paying for basically the same things you were charged for during your original mortgage. Included in your costs may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
You might need to pay discount points (prepaid interest) to attain a lower rate of interest. Your savings over the life of the loan could be substantial if you've paid up front about 3% of the new loan total. We recommend that you consult with a tax professional before acting on hear-say that these points paid can be deducted on your taxes.
Another thing about taxes is that when you reduce your interest rate, it follows that you'll also be lowering the interest amount that you'll be able to deduct from your taxes. This is one more expense that some borrowers consider. Call us at (707) 252-2700 to help you do the math.
Most borrowers find that the savings each month quickly outweigh the initial expenses of refinancing. We'll work with you to figure out what mortgage loan program is the ideal fit for you, looking at your cash on hand, the likelihood of selling your residence in the next few years, and what effect refinancing will probably have on your taxes. Call us at (707) 252-2700 to get started.
Want to know more about refinancing? Call us at (707) 252-2700.