When is Refinancing Worth it?

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It has been said that only when your new interest is at least 2 points below your current rate, should you refinance your loan. Maybe several years ago that was good advice, but as refinance costs have been falling recently, it may be a good time to look into it. Refinancing your loan has some advantages that will often make it worth the initial expenditure a few times over.

Advantages of Refinancing

You might be able to lower your interest rate (sometimes significantly) and reduce your mortgage payment amount with a refinanced loan. You may also be able to "cash out" a portion of the built-up equity in your home, which you are able use to consolidate debt, add on to your home, or finance a vacation. With reduced interest rates, you may also get the chance to build your home equity more quickly by moving to a shorter term loan.

Fees and Expenses

All of these benefits do come with some expense, though. You will pay the same sort of expenses and fees as you did with your present mortgage. These might include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and others.

Doing the Math

You might offer to pay discount points (prepaid interest) to attain a better interest rate. The money you will save over the life of the mortgage loan may be significant if you have paid up front about three percent of the new loan balance. We recommend that you talk to a tax professional before acting on hear-say that these paid points can be deducted on your taxes.

Speaking of taxes, once you reduce your interest rate, of course you will also be reducing the paid interest amount that you may deduct from your federal income taxes. This is one more cost that borrowers consider. Call us at 623-340-0934 to help you do the math.

In the end, for most the amount of up-front costs to refinance will be made up soon in savings each month. We will work with you to determine what loan program is right for you, looking at your cash on hand, how likely you are to sell your house in the next few years, and the effect refinancing might have on your taxes. Call us at 623-340-0934 to get you started.

Want to know more about refinancing? Give us a call at 623-340-0934.

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