When is Refinancing Worth it?

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Ever heard the old rule of thumb that says you should only consider refinancing if the new interest rate will be at least two points under your current rate? Perhaps that was good advice a number of years ago, but since refinance costs have been falling recently, it may be time to take a serious look. Refinancing your loan has a number of advantages that can make it worth the initial cost several times over.

Advantages

You could be able to bring down your interest rate (sometimes by a lot) and reduce your monthly mortgage payment amount with a refinanced mortgage. You may also have the option to "cash out" some of the built-up equity in your residence, that you are able use to take care of higher interest debts, make home improvements, or plan a vacation. With lower rates, you might also be able to build your home equity more quickly by changing to a shorter-term mortgage loan.

Fees and Expenses

Of course, you'll have to pay for the process of refinancing. You will have the same kinds of fees as with your current home loan. Included in your costs can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Doing the Math

You might need to pay points (prepaid interest) to attain a better rate of interest. The money you'll save over the life of the mortgage might be substantial if you've paid up front about three percent of the new loan total. You may have heard that points may be deducted on your income taxes, but since tax regulations are ever-changing, please speak with your tax professional before depending on this.

Speaking of taxes, once you reduce your interest rate, naturally you'll also be lowering the interest amount that you may deduct on your taxes. This is another cost that some borrowers take into consideration. Call us at 952 417 8481 to help you do the math.

All things considered, for most people the amount of initial costs to refinance will be paid back very quickly in savings each month. We can help you figure out what your options are, considering the effect a refinance may have on your taxes, if you are likely to sell your home in the near future, and your cash on hand. Call us at 952 417 8481 to get started.

Want to know more about refinancing your home? Call us at 952 417 8481.

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