Weighing the Options of Refinancing
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Have you ever heard the pearl of wisdom that says you should only consider refinancing if the new interest rate is at least 2 points under your existing one? That may have been accurate years ago, but since refinancing has been costing less in recent years, it is never the wrong time to consider a new mortgage loan! Refinancing your mortgage has some benefits that will often make it worth the initial expenditure several times over.
When you refinance, you may have the ability to lower your interest rate and monthly mortgage payment amount, perhaps by a lot. You may also have the option to "cash out" a portion of your home equity, that you can use to take care of higher interest debt, add on to your home, or take a vacation. With reduced rates, you might also be able to build up home equity more quickly by switching to a shorter-term loan.
All of these benefits do come with some expense, though. You'll have the same kinds of expenses and fees as you did with your current home loan. Among these can be settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.
Do the Math
You could offer to pay points (prepaid interest) to gain a better interest rate. Your savings on the life of the mortgage may be significant if you have paid up front about 3% of the new loan total. Please consult a tax professional before acting on rumors that these points paid may be deducted on your taxes.
Speaking of taxes, when your interest rate is lowered, of course you'll also be reducing the paid interest amount that you'll be able to deduct on your federal income taxes. This is another expense that some borrowers consider. Call us at (650) 689-5684 to help you do the math.
Most borrowers find that the monthly savings balance out the initial expenses of a refinance. We can help you explore 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 cash on hand. Call us at (650) 689-5684 to get you started.
Curious about refinancing? Give us a call: (650) 689-5684.