When is Refinancing Worth it?

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It has been said that only if your new interest will be at least two points below your current rate, should you refinance your loan. Perhaps several years ago that was good advice, but since refinance costs have been getting lower, it could be time to look into it. A refinance may be worth its cost several times over, factoring in the benefits that come, in addition to a reduced interest rate.

Advantages

When you refinance, you may be able to reduce your interest rate and mortgage payment amount, perhaps by a lot. You also might be given the option of tapping into the equity in your house by "cashing out" some money to remodel your home, consolidate debt, or take your family on a vacation. With reduced rates, you might also be able to build your home equity faster by switching to a shorter term mortgage.

Fees and Expenses

All of these advantages do come with some expense, though. When you refinance, you're paying for a lot of the same things you paid for when you obtained your existing mortgage loan. Among these may be settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.

Do the Math

You might think about paying points to reduce your interest rate. When you pay (on average) 3% of the mortgage loan amount at the start, your savings for the life of the refinanced loan can be significant. You might be told that points may be tax deductible, but as tax regulations can be ever-changing, please consult a tax professional before making decisions based on this.

Another thing about taxes is that once your interest rate is lowered, of course you will also be lowering the interest amount that you can deduct on your taxes. This is another expense that borrowers consider. Call us at 720-598-8300 to help you do the math.

Most people find that the savings per month quickly balance out the initial expenses of refinancing. We can help you explore your options, considering the effect a refinance may have on your taxes, whether you are likely to sell your home in the next couple of years, and your money on hand. Call us at 720-598-8300 to get you started.

Want to know more about refinancing? Give us a call at 720-598-8300.

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