When is Refinancing Worth it?
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Ever heard the pearl of wisdom that states you should only refinance if your new interest rate will be at least 2 points under your existing rate? That could have been accurate years ago, but since refinancing has been costing less in recent years, it's never the wrong time to consider a new loan! A refinance is often worth its cost many times over, considering the advantages that it brings, as well as a reduced interest rate.
Benefits from Refinancing
When you refinance, you could have the ability to reduce your interest rate and monthly mortgage payment amount, sometimes by a lot. Additionally, you might be given the option of pulling out some of the equity in your house by "cashing out" some funds to fix up your home, consolidate debt, or plan a special vacation. You may have the option to refinance into a shorter-term mortgage, enabling you to build up your equity faster.
All of these benefits do cost something, though. You will have to pay the same types of fees as with your existing mortgage. Included in your costs will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Do the Math
You might offer to pay discount points (prepaid interest) to get a lower interest rate. When you pay (on average) three percent of the loan amount initially, the savings for the life of the refinanced mortgage loan can be significant. You may hear that points can be tax deductible, but as tax regulations can be difficult to keep up with, please speak with your tax professional before considering this in your calculations.
Another cost that borrowers may take into account is that a lower rate of interest will reduce the interest amount you will be able to deduct on your federal income taxes. Call us at (334) 285-8850 to help you do the math.
In the end, for most people the amount of initial costs to refinance will be made up very quickly in monthly savings. We will work with you to find out what program is ideal for you, considering your cash on hand, the likelihood of selling your home in the next few years, and how refinancing can effect your taxes. Call us at (334) 285-8850 to get you started.
Curious about refinancing your home? Call us: (334) 285-8850.