Is Refinancing Worth the Cost?
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Have you ever heard the pearl of wisdom that says you should only consider refinancing if the new interest rate will be at least two points under your current rate? Maybe that was good advice a number of years ago, but since refinance costs have been getting lower, it may be time to take a serious look. Refinancing has a number of benefits that can make it worth the initial cost many times over.
Advantages of Refinancing
You may be able to lower your interest rate (sometimes significantly) and make smaller mortgage payments with a refinanced mortgage loan. Additionally, you may have the option of tapping into the equity in your home by "cashing out" some funds to fix up your home, consolidate debt, or take your family on a vacation. With lower interest rates, you might also be able to build up home equity faster by moving to a shorter term loan.
Expenses and Fees
All these benefits do come with some expense, though. When you refinance, you are paying for a lot of the same things you were charged for during your existing mortgage. Included in the list may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might think about paying points to receive a better interest rate. When you pay (on average) 3% of the loan amount up front, the savings for the term of the new mortgage can be great. We recommend that you talk to a tax professional before acting on rumors that any paid points can be deducted on your federal income taxes.
One more cost that borrowers might consider is that a reduced interest rate will reduce the interest amount you will be able to deduct from your taxes. Call us at (650) 689-5684 to help you do the math.
Most borrowers find that the savings per month quickly balance out the up-front cost of refinancing. 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 money on hand. Call us at (650) 689-5684 to get you started.
Curious about refinancing your home? Give us a call at (650) 689-5684.