Weighing the Options of Refinancing

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Have you ever heard the old rule of thumb that states you should only refinance if your new interest rate will be at least two points below your current rate? That could have been true a while back, but as refinancing has been costing less over the last few years, it's a good time to consider a new mortgage loan! A refinanced loan may be worth its cost several times over, because of the benefits that may come, in addition to a lower interest rate.

Advantages of Refinancing

You may be able to lower your interest rate (sometimes significantly) and make smaller mortgage payments with your refinanced mortgage loan. You could also be able to "cash out" some of the built-up equity in your residence, which you will be able use to consolidate debt, make home improvements, or plan a vacation. With lower interest rates, you may also get the chance to build your home equity faster by changing to a shorter-term mortgage loan.

Fees and Expenses

All these advantages do cost something, though. You'll pay the same kinds of fees as you did with your current home loan. These may include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.

Doing the Math

You might need to pay points (prepaid interest) to gain a lower interest rate. The amount you will save on the life of the loan might be substantial if you've paid up front about 3% of the new loan total. We recommend that you consult with a tax professional before acting on rumors that any paid points can be deducted on your federal income taxes.

Another cost that a borrower might consider is that a lower rate of interest will reduce the interest amount you'll deduct from your taxes. Call us at (334) 285-8850 to help you do the math.

All things considered, for most people the total of initial costs to refinance are paid back very quickly in savings each month. We can help you figure out your options, considering the effect a refinance may have on your taxes, how likely you may be to sell in the near future, and your available cash. Call us at (334) 285-8850 to get started.

Curious about refinancing your home? Call us: (334) 285-8850.

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