When is Refinancing Worth it?
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It has been said that only when your new interest is at least 2 points lower, should you refinance your loan. That might have been valid a while back, but with refinancing dropping in cost over the last few years, it is a good time to think about a new mortgage loan! Refinancing your mortgage loan has a variety of benefits that can make it worth the initial cost many times over.
You could be able to lower your interest rate (sometimes substantially) and make smaller mortgage payments with your refinanced loan. You could also have the ability to "cash out" a portion of your home equity, that you can use to consolidate debts, improve your home, or take a vacation. You could have the option to refinance into a shorter-term mortgage loan, giving you the ability to build your home equity faster.
Expenses and Fees
All of these advantages do cost something, though. You will have the same types of expenses and fees as you did with your present mortgage loan. These could include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and so on.
Doing the Math
You might consider paying points to reduce your interest rate. When you pay (on average) 3% of the loan amount initially, the savings for the term of the new mortgage loan can be significant. You may be told that the points may be tax deductible, but because tax regulations are difficult to keep up with, please speak with a tax professional before making decisions based on this.
Speaking of taxes, if your interest rate is reduced, of course you will also be lowering the interest amount that you will be able to deduct on your federal income taxes. This is one more cost that some borrowers take into consideration. Call us at (650) 689-5684 to help you do the math.
Ultimately, for most people the amount of up-front costs to refinance will be paid back very quickly in savings each month. We can help you explore what your options are, considering the effect a refinance could have on your taxes, how likely you may be to sell in the near future, and your available cash. Call us at (650) 689-5684 to get you started.
Curious about refinancing? Call us at (650) 689-5684.