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 is at least two points below your current rate? Maybe that was sound advice a number of years ago, but since refinance costs have been falling recently, it could be a good time to look into it. A refinanced mortgage loan may be worth its cost several times over, considering the benefits that come, in addition to a lower interest rate.

Advantages of Refinancing

You might be able to bring down your interest rate (sometimes substantially) and make smaller mortgage payments with your refinanced mortgage. You might also be able to "cash out" a portion of your home equity, which you may use to take care of higher interest debt, add on to your home, or plan a vacation. You could have the option to refinance to a shorter-term mortgage loan, enabling you to add to your equity quicker.

The Cost

As you probably expect, you will have to pay for the the refinance process. With your refinance, you're paying for basically the same things you were charged for during your original mortgage. These can include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.

Doing the Math

You might need to pay points (prepaid interest) to attain a more favorable interest rate. When you pay (on average) three percent of the loan amount at the start, the savings for the life of the refinanced mortgage can be significant. We recommend that you consult a tax professional before acting on rumors that the points paid can be deducted on your taxes.

Speaking of taxes, if your interest rate is lowered, of course you'll also be lowering the interest amount that you'll be able to deduct from your federal income taxes. This is another cost that borrowers take into account. We can help you do the math! Call us at 703-288-0777.

Most borrowers find that the monthly savings quickly balance out the up-front cost of refinancing. We'll work with you to figure out what program is perfect for you, looking at your cash on hand, how likely you are to sell your residence in the near future, and the effect refinancing will have on your taxes. Call us at 703-288-0777 to get you started.

Curious about refinancing your home? Give us a call at 703-288-0777.

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