Is Refinancing Worth the Cost?
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Have you ever heard the old rule of thumb that says you should only consider refinancing if your new interest rate will be at least two points below your current one? That could have been valid a while back, but with refinancing dropping in cost in recent years, it is a good time to explore the options of a new mortgage! Refinancing your mortgage loan has a number of advantages that can make it worth the initial expenditure a few times over.
When you refinance, you could be able to reduce your interest rate and mortgage payment amount, perhaps by a lot. You may also have the option to "cash out" some of your equity, that you may use to consolidate debts, add on to your home, or take a vacation. With lower interest rates, you might also get the chance to build your home equity more quickly by switching to a shorter-term mortgage.
Expenses and Fees
All of these advantages do come with some expense, though. With your refinance, you are paying for basically the same things you were charged for at the time you got your current mortgage loan. These could include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.
Do the Math
You might offer to pay discount points (prepaid interest) to gain a more favorable rate of interest. Your savings on the life of the loan may be substantial if you have paid up front about three percent of the new loan total. You may hear that points can be deducted on your income taxes, but because tax regulations are difficult to keep up with, we urge you to consult with your tax professional before depending on this.
Another thing about taxes is that if you lower your interest rate, it follows that you'll also be reducing the paid interest amount that you will be able to deduct from your federal income taxes. This is another cost that some borrowers take into account. Call us at (650) 689-5684 to help you do the math.
Most borrowers find that the monthly savings quickly outweigh the initial cost of refinancing. We can help you explore what your options are, considering the effect a refinance may have on your taxes, whether you are likely to sell your home in the next couple of years, and your cash on hand. Call us at (650) 689-5684 to get you started.
Curious about refinancing your home? Give us a call: (650) 689-5684.