When is Refinancing Worth it?
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Ever heard the pearl of wisdom that says you should only consider refinancing if your new interest rate will be at least two points under your current rate? That might have been valid a while back, but with refinancing dropping in cost in recent years, it's never the wrong time to think about a new mortgage loan! Refinancing has a number of advantages that can make it worth the initial expenditure a few times over.
When you refinance, you might be able to lower your interest rate and monthly mortgage payment , sometimes considerably. You might also have the ability to "cash out" a portion of your equity, which you will be able use to take care of higher interest debt, improve your home, or plan a vacation. With reduced interest rates, you might also get the chance to build your home equity faster by switching to a shorter-term mortgage.
Fees and Expenses
All of these benefits do come with some expense, though. When you refinance, you're paying for most of the same things you were charged for at the time you got your current mortgage. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
Paying discount points can get you a lower interest rate. If you pay (on average) 3% of the loan amount at the start, the savings for the term of the new mortgage loan can be great. You may hear 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 speak with a tax professional before considering this in your calculations.
Speaking of taxes, once your interest rate is lowered, of course you'll also be reducing the interest amount that you will be able to deduct from your federal income taxes. This is another cost that some borrowers take into account. We can help you do the math! Call us at 425-508-9988.
Most people find that the savings per month balance out the up-front cost of refinancing. We'll work with you to determine what loan program is right for you, taking into account your cash on hand, how likely you are to sell your house in the next few years, and the effect refinancing will have on your taxes. Call us at 425-508-9988 to get started.
Want to know more about refinancing? Give us a call at 425-508-9988.