Is Refinancing Worth the Cost?

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Have you ever heard the pearl of wisdom that says you should only refinance if your new interest rate will be at least two points lower than your current one? Perhaps that was sound advice a number of years ago, but since refinance costs have been getting lower, it may be time to take a serious look. Refinancing your loan has some benefits that can make it worth the up-front expenditure many times over.

Benefits from Refinancing

You might be able to lower your interest rate (sometimes by a lot) and reduce your monthly mortgage payment amount with a refinanced mortgage. You also might have the option of pulling out some of the equity in your home by "cashing out" some funds to renovate your home, consolidate debt, or take your family on a vacation. With lower rates, you might also be able to build your home equity more quickly by changing to a shorter term loan.

Expenses and Fees

All of these benefits do come with some expense, though. You will have to pay the same types of expenses and fees as with your existing mortgage. Included in the list may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Doing the Math

Paying points can help you get a better interest rate. If you pay (on average) three percent of the mortgage loan amount initially, your savings for the term of the refinanced mortgage loan can be substantial. Please consult a tax professional before acting on advice that these paid points may be deducted on your federal income taxes.

Speaking of taxes, when you reduce your interest rate, of course you will also be lowering the paid interest amount that you can deduct on your federal income taxes. This is one more expense that borrowers take into account. Call us at 425-508-9988 to help you do the math.

Most people find that the monthly savings quickly balance out the up-front cost of refinancing. We can help you figure out what your options are, considering the effect a refinance might have on your taxes, whether you are likely to sell your home in the near future, and your available cash. Call us at 425-508-9988 to get started.

Curious about refinancing? Give us a call at 425-508-9988.

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