When is Refinancing Worth it?
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Ever heard the old rule of thumb that states you should only refinance if the new interest rate is at least two points lower than your current rate? Perhaps several years ago that was wise advice, but since refinance costs have been getting lower, it could be time to take a serious look. Refinancing has some advantages that can make it worth the initial expenditure many times over.
Advantages of Refinancing
When you refinance, you may have the ability to reduce your interest rate and mortgage payment amount, sometimes considerably. Additionally, you could have the option of pulling out some of your home equity by "cashing out" some money to fix up your home, consolidate debt, or take your family on a vacation. With reduced interest rates, you might also get the chance to build your home equity more quickly by changing to a shorter term mortgage loan.
As you probably know, you'll have some fees and expenses during your the refinance process. You'll have to pay the same sort of expenses and fees as you did with your existing mortgage. These probably include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.
Doing the Math
You might need to pay points (prepaid interest) to attain a lower rate of interest. Your savings over the life of the mortgage loan may be significant if you have paid up front about three percent of the new loan total. You might have heard that points may be tax deductible, but as tax regulations are difficult to keep up with, please consult with a tax professional before considering this in your calculations.
Another thing about taxes is that if your interest rate is reduced, it follows that you will also be reducing the interest amount that you may deduct on your federal income taxes. This is another cost that some borrowers consider. Call us at (916) 399-5500 to help you do the math.
Ultimately, for most the total of up-front costs to refinance are made up very quickly in savings each month. We will work with you to determine which mortgage loan program is perfect for you, considering your cash on hand, how likely you are to sell your residence in the next few years, and how refinancing will effect your taxes. Call us at (916) 399-5500 to get started.
Curious about refinancing your home? Call us: (916) 399-5500.