When is Refinancing Worth it?
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Ever hear the old rule of thumb that states you should only refinance if your new interest rate will be at least 2 points under your current rate? Perhaps several years ago that was sage advice, but since refinance costs have been getting lower, it could be a good time to look into it. Refinancing has a number of advantages that will often make it worth the up-front cost many times over.
You could be able to bring down your interest rate (sometimes significantly) and make smaller monthly payments with your refinanced loan. You also might be given the option of tapping into the equity in your home by "cashing out" a sum of money to fix up your home, consolidate debt, or plan a special vacation. With lower interest rates, you might also get the chance to build your home equity faster by moving to a shorter term loan.
Expenses and Fees
All these advantages do come with some expense, though. When you refinance, you're paying for basically the same things you paid for during your current mortgage. Among these might be settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.
Do the Math
You might think about paying points to receive a reduced interest rate. Your savings on the life of the mortgage loan might be substantial if you have paid up front about three percent of the new loan balance. You may hear that points can be deducted on your income taxes, but since tax regulations are ever-changing, please speak with your tax professional before depending on this.
An additional expense that a borrower may take into account is that a reduced rate of interest will reduce the interest amount you will be able to deduct on your federal income taxes. We can help you do the math! Call us at 703-288-0777.
In the end, for most borrowers the amount of up-front costs to refinance are paid back soon in savings each month. We will help you find out what loan program is best for you, looking at your cash on hand, how likely you are to sell your residence in the near future, and the effect refinancing could have on your taxes. Call us at 703-288-0777 to get you started.
Want to know more about refinancing? Call us at 703-288-0777.
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