When is Refinancing Worth it?
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Some have said that only in the case your new interest is at least two points under your current rate, should you refinance your loan. Maybe several years ago that was good advice, but since refinance costs have been getting lower, it may be a good time to look into it. A refinance is often worth its cost several times over, because of the advantages that may come, along with a reduced interest rate.
Advantages of Refinancing
You may be able to lower your interest rate (sometimes substantially) and reduce your monthly payment amount with your refinanced mortgage. You also could be given the option of pulling out some of your home equity by "cashing out" some funds to remodel your home, consolidate debt, or plan a special vacation. With lower rates, you might also get the chance to build your home equity faster by switching to a shorter-term mortgage loan.
Fees and Expenses
Of course, you will have some fees and expenses during the process of refinancing. With your refinance, you are paying for a lot of 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 expenses.
Do the Math
You could need to pay points (prepaid interest) to get a more favorable interest rate. The amount you'll save on the life of the mortgage loan might be significant if you've paid up front about 3% of the new loan balance. We recommend that you consult a tax professional before acting on rumors that these paid points can be deducted on your taxes.
Speaking of taxes, when your interest rate is lowered, of course you will also be lowering the interest amount that you may deduct on your federal income taxes. This is one more expense that borrowers take into consideration. Call us at 720-598-8300 to help you do the math.
Ultimately, for most borrowers the total of up-front costs to refinance will be paid back soon in monthly savings. We can help you explore your options, considering the effect a refinance might have on your taxes, if you are likely to sell your home in the next couple of years, and your cash on hand. Call us at 720-598-8300 to get started.
Curious about refinancing your home? Call us at 720-598-8300.