Weighing the Options of Refinancing

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Have you ever heard the old rule of thumb that states you should only consider refinancing if your new interest rate is at least two points under your current one? Perhaps several years ago that was good advice, but as refinance costs have been falling recently, it could be a good time to take a serious look. Refinancing has a variety of advantages that will often make it worth the initial cost many times over.

Benefits

When you refinance, you may be able to lower the interest rate and monthly mortgage payment amount, sometimes considerably. You also could have the option of tapping into the equity in your house by "cashing out" some money to fix up your home, consolidate debt, or plan a special vacation. With lower interest rates, you might also be able to build up home equity faster by changing to a shorter-term mortgage loan.

Fees and Expenses

As you probably expect, you will have some fees and expenses during your process of refinancing. You will have the same types of fees as you did with your present mortgage. Included in your costs will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Do the Math

You might offer to pay points (prepaid interest) to gain a lower rate of interest. When you pay (on average) 3% of the loan amount initially, the savings for the term of the refinanced loan can be substantial. You may have heard that the points may be deducted on your income taxes, but because tax regulations can be difficult to keep up with, please consult a tax professional before considering this in your calculations.

Another thing about taxes is that once your interest rate is reduced, naturally you will also be lowering the interest amount that you will be able to deduct on your federal income taxes. This is another cost that some borrowers take into consideration. Call us at 562 320-0510 to help you do the math.

All things considered, for most people the total of initial costs to refinance will be made up soon in monthly savings. We can help you explore what your options are, considering the effect a refinance might 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 562 320-0510 to get you started.

Want to know more about refinancing? Call us: 562 320-0510.

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