When is Refinancing Worth it?
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Have you ever heard the pearl of wisdom that says you should only refinance if the new interest rate will be at least two points lower than your current one? That might have been sound advice a while back, but since refinancing has been costing less recently, it's a good time to consider a new loan! Refinancing has a number of advantages that will often make it worth the initial cost many times over.
You may be able to lower your interest rate (sometimes significantly) and have smaller mortgage payments with a refinanced loan. You could also have the option to "cash out" a portion of your equity, which you will be able use to consolidate debts, add on to your home, or plan a vacation. With reduced rates, you might also get the chance to build your home equity faster by changing to a shorter-term mortgage loan.
Expenses and Fees
All these advantages do come with some expense, though. You'll have the same kinds of expenses and fees as with your current home loan. These probably include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.
Doing the Math
Paying points can get you a lower interest rate. The money you will save on the life of the loan could be substantial if you've paid up front about three percent of the new loan total. Please talk to a tax professional before acting on hear-say that these points paid can be deducted on your taxes.
Speaking of taxes, when you lower your interest rate, of course you will also be reducing the interest amount that you will be able to deduct on your taxes. This is one more expense that borrowers take into consideration. We can help you do the math! Call us at (650) 689-5684.
Most borrowers find that the savings per month balance out the up-front cost of a refinance. We'll work with you to find out which mortgage program is the right fit for you, taking into account your cash on hand, the likelihood of selling your house in the next few years, and the effect refinancing may have on your taxes. Call us at (650) 689-5684 to get you started.
Curious about refinancing? Give us a call: (650) 689-5684.