Weighing the Options of Refinancing
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Ever heard the pearl of wisdom that states you should only consider refinancing if your new interest rate will be at least two points lower than your present rate? That might have been accurate a while back, but since refinancing has been costing less recently, it is never the wrong time to consider a new loan! A refinanced mortgage loan may be worth its cost many times over, factoring in the benefits that it brings, along with a reduced interest rate.
When you refinance, you could have the ability to reduce your interest rate and mortgage payment , perhaps by a lot. Additionally, you might have the option of tapping into the equity in your house by "cashing out" some money to fix up your home, consolidate debt, or plan a special vacation. With reduced rates, you may also get the chance to build your home equity faster by changing to a shorter term mortgage.
All of these benefits do come with some expense, though. When you refinance, you are paying for basically the same things you paid for at the time you got your existing mortgage. These may include settlement costs, appraisal fees, lender's title insurance, underwriting fees, and others.
Do the Math
You could offer to pay points (prepaid interest) to gain a more favorable interest rate. Your savings over the life of the mortgage might be significant if you have paid up front about 3% of the new loan balance. You might hear that points may be deducted on your income taxes, but since tax regulations can be difficult to keep up with, please consult your tax professional before considering this in your calculations.
Speaking of taxes, when your interest rate is reduced, of course you'll also be reducing the interest amount that you can deduct on your taxes. This is one more cost that borrowers take into consideration. Call us at (707) 252-2700 to help you do the math.
Most people find that the savings each month outweigh the initial expenses of refinancing. We will help you determine which mortgage loan program is right for you, considering your cash on hand, how likely you are to sell your residence in the near future, and how refinancing might effect your taxes. Call us at (707) 252-2700 to get you started.
Curious about refinancing? Give us a call at (707) 252-2700.