When is Refinancing Worth it?
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Ever hear the old rule of thumb that says you should only refinance if your new interest rate will be at least 2 points below your current rate? That could have been true years ago, but with refinancing dropping in cost over the last few years, it is a good time to consider a new loan! Refinancing your mortgage loan has various advantages that will often make it worth the initial cost many times over.
You may be able to bring down your interest rate (sometimes substantially) and have smaller monthly payments with your refinanced mortgage loan. You also could have the option of tapping into your home equity by "cashing out" a sum of money to remodel your home, consolidate debt, or plan a special vacation. You could be able to refinance into a shorter-term mortgage program, giving you the ability to build your equity quicker.
Expenses and Fees
Of course, you'll have some fees and expenses during the process of refinancing. With your refinance, you're paying for basically the same things you paid for at the time you obtained your existing mortgage. Among these may be settlement costs, appraisal fees, lender's title insurance, underwriting fees, and so on.
Doing the Math
You might offer to pay discount points (prepaid interest) to get a more favorable rate of interest. Your savings on the life of the mortgage loan could be substantial if you've paid up front about three percent of the new loan total. Please consult a tax professional before acting on advice that these paid points can be deducted on your federal income taxes.
Speaking of taxes, when you bring down your interest rate, naturally you will also be reducing the paid interest amount that you will be able to deduct from your taxes. This is another expense that borrowers take into account. Call us at (415) 244-9383 to help you do the math.
Most borrowers find that the savings per month quickly outweigh the initial expenses of refinancing. We can help you explore what your options are, considering the effect a refinance might have on your taxes, if you are likely to sell your home in the next couple of years, and your available cash. Call us at (415) 244-9383 to get you started.
Want to know more about refinancing your home? Give us a call at (415) 244-9383.