When is Refinancing Worth it?
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Have you ever heard the old rule of thumb that says you should only refinance if the new interest rate will be at least 2 points below your current rate? Maybe that was good advice a number of years ago, but since refinance costs have been falling recently, it could be a good time to take a serious look. Refinancing has a number of benefits that will often make it worth the initial expenditure a few times over.
Benefits from Refinancing
You may be able to lower your interest rate (sometimes by a lot) and reduce your monthly payment amount with a refinanced loan. You may also have the option to "cash out" a portion of your equity, which you may use to consolidate debts, add on to your home, or plan a vacation. You may be able to refinance into a shorter-term mortgage program, enabling you to build up your equity quicker.
Fees and Expenses
All these benefits do cost something, though. You'll have to pay the same types of fees as you did with your current home loan. Included in your costs might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You could need to pay discount points (prepaid interest) to attain a better interest rate. If you pay (on average) 3% of the loan amount up front, your savings for the term of the refinanced mortgage can be great. You might be told that these points can be tax deductible, but as tax regulations are difficult to keep up with, please speak with your tax professional before making decisions based on this.
One more expense that borrowers might take into account is that a reduced rate of interest will lower the interest amount you will deduct from your taxes. We can help you do the math! Call us at 562 320-0510.
Ultimately, for most people the total of initial costs to refinance are paid back very quickly in savings each month. We can help you explore your options, 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 money on hand. Call us at 562 320-0510 to get you started.
Curious about refinancing? Call us: 562 320-0510.