When is Refinancing Worth it?
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It has been said that only when your new interest is at least 2 points under your current rate, should you refinance your loan. Maybe that was sound advice several years ago, but since refinance costs have been getting lower, it may be a good time to take a serious look. A refinance can be worth its cost several times over, factoring in the benefits that it brings, in addition to a reduced interest rate.
You might be able to lower your interest rate (sometimes by a lot) and have smaller mortgage payments with your refinanced mortgage. Additionally, you might be given the option of tapping into the equity in your house by "cashing out" a sum of money to renovate your home, consolidate debt, or plan a special vacation. With reduced interest rates, you may also be able to build up home equity more quickly by switching to a shorter term mortgage.
Expenses and Fees
All of these advantages do come with some expense, though. With your refinance, you're paying for most of the same things you paid for at the time you obtained your current mortgage. Included in your costs may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might offer to pay discount points (prepaid interest) to get a lower interest rate. The money you'll save on the life of the loan could be substantial if you've paid up front about three percent of the new loan balance. Please talk to a tax professional before acting on advice that the points paid may be deducted on your taxes.
One more expense that a borrower might consider is that a lower rate of interest will lower the interest amount you'll be able to deduct on your taxes. Call us at 903-561-2603 to help you do the math.
Ultimately, for most the amount of initial costs to refinance are made up very quickly in savings each month. We'll help you determine what mortgage program is best for you, looking at your cash on hand, how likely you are to sell your house in the near future, and what effect refinancing may have on your taxes. Call us at 903-561-2603 to get you started.
Curious about refinancing? Give us a call at 903-561-2603.