Weighing the Options of Refinancing
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Ever hear the old rule of thumb that says you should only refinance if the new interest rate will be at least two points below your existing rate? Perhaps that was good advice a number of years ago, but as refinance costs have been getting lower, it may be time to look into it. Refinancing your mortgage has various benefits that will often make it worth the up-front cost several times over.
Advantages of Refinancing
You might be able to bring down your interest rate (sometimes significantly) and make smaller monthly payments with a refinanced loan. You could also be able to "cash out" some of the built-up equity in your home, that you can use to take care of higher interest debts, make home improvements, or finance a vacation. With reduced rates, you may also get the chance to build your home equity more quickly by moving to a shorter-term mortgage loan.
Expenses and Fees
As you probably expect, you will have to pay for your process of refinancing. With your refinance, you're paying for most of the same things you paid for during your existing mortgage. Among these may be settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.
Doing the Math
You could need to pay points (prepaid interest) to get a more favorable rate of interest. The amount you will save over the life of the mortgage could be significant if you have paid up front about three percent of the new loan balance. You might have heard that these points can be deducted on your income taxes, but because tax regulations can be difficult to keep up with, we urge you to consult with your tax professional before making decisions based on this.
One more cost that a borrower might take into account is that a reduced interest rate will reduce the interest amount you'll deduct from your taxes. Call us at 720-598-8300 to help you do the math.
All things considered, for most the amount of up-front costs to refinance are paid back soon in monthly savings. We can help you explore your options, considering the effect a refinance may 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.
Want to know more about refinancing? Give us a call at 720-598-8300.