When is Refinancing Worth it?
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Have you ever heard the old rule of thumb that says you should only consider refinancing if the new interest rate is at least two points below your current one? 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 a number of benefits that often make it worth the initial cost many times over.
Advantages
When you refinance, you could be able to reduce the interest rate and monthly mortgage payment , sometimes significantly. You also might be given the option of pulling out some of the equity in your home by "cashing out" a sum of money to remodel your home, consolidate debt, or plan a special vacation. With reduced interest rates, you might also get the chance to build your home equity more quickly by changing to a shorter-term loan.
Fees and Expenses
Of course, you'll have to pay for the the refinance process. You'll pay the same sort of expenses and fees as you did with your current mortgage. These can include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.
Doing the Math
You could need to pay discount points (prepaid interest) to get a better interest rate. The amount you will save over the life of the mortgage loan might be significant if you've paid up front about 3% of the new loan total. You might have heard that the points may be tax deductible, but as tax regulations can be difficult to keep up with, please consult a tax professional before depending on this.
Speaking of taxes, if your interest rate is reduced, of course you'll also be reducing the interest amount that you will be able to deduct from your federal income taxes. This is another expense that borrowers take into consideration. Call us at 720-598-8300 to help you do the math.
Most people find that the savings per month quickly outweigh the up-front cost of a refinance. We can help you explore your options, considering the effect a refinance may have on your taxes, how likely you might be to sell in the next couple of years, and your available cash. Call us at 720-598-8300 to get you started.
Want to know more about refinancing? Give us a call at 720-598-8300.