Is Refinancing Worth the Cost?
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Ever hear the old rule of thumb that states you should only refinance if the new interest rate will be at least 2 points lower than your current rate? That may have been true years ago, but with the fact that refinancing has been costing less recently, it's a good time to think about a new loan! A refinance can be worth its cost several times over, factoring in the benefits that can come, as well as a lower interest rate.
Advantages of Refinancing
When you refinance, you may have the ability to reduce the interest rate and monthly mortgage payment , sometimes by a lot. You also might have the option of tapping into the equity in your home by "cashing out" some money to remodel your home, consolidate debt, or take your family on a vacation. You might have the option to refinance into a shorter-term mortgage program, enabling you to add to your home equity quicker.
Fees and Expenses
All of these advantages do cost something, though. When you refinance, you are paying for most of the same things you were charged for during your current mortgage loan. Included in the list might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees. THE TOTAL FINANCE CHARGES MAY BE HIGHER OVER THE LIFE OF THE LOAN.
Doing the Math
Paying points can help you attain a lower interest rate. Your savings on the life of the mortgage loan may be substantial if you've paid up front about 3% of the new loan total. You may hear that these points can be deducted on your income taxes, but as tax regulations can be ever-changing, please consult a tax professional before considering this in your calculations.
An additional expense that borrowers might take into account is that a lower rate of interest will lower the interest amount you'll deduct on your federal income taxes. We can help you do the math!
Most borrowers find that the savings per month quickly outweigh the up-front expenses of a refinance. We'll work with you to determine what loan program is the ideal fit for you, looking at your cash on hand, how likely you are to sell your house in the next few years, and what effect refinancing will have on your taxes.