When is Refinancing Worth it?

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Some have said that only if your new interest is at least 2 points below your current rate, should you refinance your mortgage. Maybe that was sound advice several years ago, but as refinance costs have been falling recently, it could be time to take a serious look. A refinance can be worth its cost several times over, because of the advantages that it brings, in addition to a lower interest rate.

Benefits

You might be able to bring down your interest rate (sometimes substantially) and reduce your monthly mortgage payment amount with your refinanced mortgage loan. You might also have the option to "cash out" a portion of the built-up equity in your residence, which you will be able use to take care of higher interest debts, make home improvements, or finance a vacation. You may be able to refinance to a shorter-term mortgage program, giving you the ability to build your home equity quicker.

The Cost

As you probably know, you'll have to pay for the process of refinancing. You'll pay the same sort of expenses and fees as with your present home loan. Included in your costs may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

Doing the Math

You might need to pay discount points (prepaid interest) to get a lower interest rate. The money you'll save on the life of the mortgage could be significant if you have paid up front about 3% of the new loan balance. We recommend that you talk to a tax professional before acting on advice that these paid points may be deducted on your taxes.

An additional cost that a borrower might consider is that a lower interest rate will reduce the interest amount you will be able to deduct from your taxes. Call us at 952 417 8481 to help you do the math.

Most people find that the savings each month quickly balance out the up-front cost of a refinance. We can help you figure out your options, considering the effect a refinance may have on your taxes, how likely you may be to sell in the next couple of years, and your cash on hand. Call us at 952 417 8481 to get started.

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

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