When is Refinancing Worth it?
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Ever hear the old rule of thumb that says you should only consider refinancing if your new interest rate will be at least 2 points lower than your existing one? Perhaps that was sound advice several years ago, but since refinance costs have been falling recently, it could be time to take a serious look. Refinancing has a number of benefits that often make it worth the initial cost many times over.
Advantages of Refinancing
When you refinance, you may have the ability to reduce the interest rate and monthly mortgage payment , perhaps by a lot. You might also have the option to "cash out" a portion of your equity, which you can use to take care of higher interest debts, make home improvements, or plan a vacation. You could have the option to refinance to a shorter-term mortgage program, giving you the ability to build up your home equity quicker.
All of these benefits do cost something, though. You'll be charged the same sort of expenses and fees as you did with your existing mortgage. These could include settlement costs, appraisal fees, lender's title insurance, underwriting fees, and so on.
Do the Math
You might need to pay points (prepaid interest) to get a lower rate of interest. Your savings over the life of the mortgage may be significant if you have paid up front about three percent of the new loan balance. You may hear that these points may be tax deductible, but since tax regulations are ever-changing, please consult a tax professional before considering this in your calculations.
Speaking of taxes, once your interest rate is reduced, naturally you'll also be reducing the paid interest amount that you'll be able to deduct on your federal income taxes. This is another cost that some borrowers consider. Call us at (407) 898-7559 to help you do the math.
In the end, for most the total of initial costs to refinance are paid back very quickly in monthly savings. We can help you figure out what your options are, considering the effect a refinance might have on your taxes, if you are likely to sell your home in the next couple of years, and your money on hand. Call us at (407) 898-7559 to get you started.
Want to know more about refinancing your home? Call us at (407) 898-7559.