When is Refinancing Worth it?
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Have you ever heard the pearl of wisdom that states you should only consider refinancing if your new interest rate will be at least 2 points below your existing rate? That could have been accurate years ago, but with refinancing dropping in cost in recent years, it is a good time to think about a new mortgage! Refinancing has various benefits that will often make it worth the initial cost a few times over.
You might be able to bring down your interest rate (sometimes substantially) and have smaller monthly payments with your refinanced loan. You might also have the option to "cash out" some of your home equity, that you are able use to consolidate debt, make home improvements, or plan a vacation. With lower interest rates, you might also be able to build your home equity faster by switching to a shorter-term mortgage.
All these benefits do come with some expense, though. With your refinance, you are paying for a lot of the same things you were charged for during your existing mortgage. These could include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and so on.
Do the Math
Paying discount points can get you a better interest rate. When you pay (on average) 3% of the mortgage loan amount initially, the savings for the life of the refinanced mortgage loan can be significant. You might be told that points can be tax deductible, but because tax regulations are difficult to keep up with, please consult with a tax professional before considering this in your calculations.
Speaking of taxes, if your interest rate is reduced, naturally you will also be lowering the interest amount that you will be able to deduct from your taxes. This is one more expense that some borrowers consider. Call us at 469-640-0400 to help you do the math.
Most borrowers find that the savings each month balance out the initial cost of a refinance. We'll work with you to find out which mortgage program is ideal for you, taking into account your cash on hand, how likely you are to sell your home in the near future, and how refinancing may effect your taxes. Call us at 469-640-0400 to get started.
Curious about refinancing your home? Give us a call: 469-640-0400.