When is Refinancing Worth it?
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Ever heard the pearl of wisdom that states you should only refinance if your new interest rate is at least 2 points below your existing rate? That might have been accurate years ago, but with refinancing dropping in cost in recent years, it is never the wrong time to consider a new loan! A refinanced mortgage can be worth its cost several times over, factoring in the advantages that may come, as well as a reduced interest rate.
Benefits from Refinancing
When you refinance, you could be able to reduce the interest rate and monthly mortgage payment , perhaps considerably. You might also have the option to "cash out" some of the built-up equity in your residence, that you may use to consolidate debts, make home improvements, or finance a vacation. With reduced rates, you may also get the chance to build your home equity faster by changing to a shorter-term mortgage loan.
Fees and Expenses
All these benefits do come with some expense, though. You will have to pay the same types of fees as with your existing mortgage. Among these can be settlement costs, appraisal fees, lender's title insurance, underwriting fees, and others.
Do the Math
You could need to pay points (prepaid interest) to gain a more favorable interest rate. Your savings on the life of the mortgage might be substantial if you have paid up front about three percent of the new loan balance. You might be told that the points can be deducted on your income taxes, but because tax regulations are ever-changing, we urge you to consult your tax professional before making decisions based on this.
Another thing about taxes is that if your interest rate is lowered, of course you'll also be lowering the interest amount that you may deduct on your taxes. This is another cost that some borrowers take into account. We can help you do the math! Call us at (650) 689-5684.
In the end, for most borrowers the amount of up-front costs to refinance will be paid back soon in savings each month. We'll help you determine what program is best for you, taking into account your cash on hand, the likelihood of selling your home in the next few years, and what effect refinancing might have on your taxes. Call us at (650) 689-5684 to get you started.
Curious about refinancing your home? Give us a call: (650) 689-5684.