When is Refinancing Worth it?
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Have you ever heard the old rule of thumb that states you should only refinance if the new interest rate will be at least 2 points below your existing one? Perhaps several years ago that was wise advice, but since refinance costs have been getting lower, it could be a good time to look into it. A refinance can be worth its cost many times over, because of the advantages that it brings, in addition to a reduced interest rate.
You could be able to bring down your interest rate (sometimes by a lot) and make smaller mortgage payments with your refinanced loan. You may also have the ability to "cash out" a portion of the built-up equity in your residence, which you can use to consolidate debt, improve your home, or plan a vacation. With lower interest rates, you might also get the chance to build up home equity faster by moving to a shorter-term loan.
Expenses and Fees
Of course, you'll have to pay for the process of refinancing. When you refinance, you are paying for most of the same things you paid for during your original mortgage. Included in the list can 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 more favorable rate of interest. Your savings over the life of the mortgage loan might be significant if you have paid up front about 3% of the new loan total. You may be told that points may be tax deductible, but because tax regulations are ever-changing, please speak with your tax professional before considering this in your calculations.
Another thing about taxes is that once your interest rate is lowered, naturally you'll also be lowering the paid interest amount that you'll be able to deduct on your taxes. This is one more expense that borrowers take into consideration. We can help you do the math! Call us at (415) 244-9383.
In the end, for most people the total of initial costs to refinance are paid back soon in savings each month. We can help you find out what your options are, considering the effect a refinance might have on your taxes, how likely you may be to sell in the next couple of years, and your available cash. Call us at (415) 244-9383 to get started.
Curious about refinancing your home? Call us at (415) 244-9383.