When is Refinancing Worth it?
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Ever heard the pearl of wisdom that says you should only consider refinancing if your new interest rate is at least 2 points below your present rate? That may have been sound advice years ago, but since refinancing has been costing less over the last few years, it is never the wrong time to think about a new loan! Refinancing has some advantages that will often make it worth the up-front cost several times over.
You might be able to bring down your interest rate (sometimes substantially) and reduce your monthly mortgage payment amount with your refinanced mortgage loan. Additionally, you could be given the option of tapping into your home equity by "cashing out" some funds to fix up your home, consolidate debt, or take your family on a vacation. With reduced rates, you might also get the chance to build your home equity more quickly by switching to a shorter-term loan.
All these advantages do come with some expense, though. You'll have the same sort of fees as you did with your existing home loan. Included in the list will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might need to pay discount points (prepaid interest) to gain a more favorable interest rate. Your savings on the life of the loan could be substantial if you have paid up front about 3% of the new loan balance. You might hear that points may be deducted on your income taxes, but as tax regulations are difficult to keep up with, please speak with your tax professional before depending on this.
Another expense that a borrower may take into account is that a lower interest rate will reduce the interest amount you will be able to deduct from your federal income taxes. We can help you do the math! Call us at (415) 244-9383.
Ultimately, for most people the total of up-front costs to refinance are made up soon in monthly savings. We'll help you determine what program is the ideal fit for you, looking at your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing may have on your taxes. Call us at (415) 244-9383 to get started.
Want to know more about refinancing your home? Give us a call: (415) 244-9383.