Is Refinancing Worth the Cost?

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Some have said that only when your new interest is at least 2 points lower, should you refinance your mortgage. That could have been good advice a while back, but with refinancing dropping in cost recently, it is a good time to explore the options of a new mortgage loan! A refinance may be worth its cost several times over, factoring in the benefits that can come, as well as a reduced interest rate.

Benefits

When you refinance, you could have the ability to reduce the interest rate and monthly payment amount, perhaps significantly. You could also have the option to "cash out" a portion of your home equity, which you will be able use to consolidate debt, make home improvements, or take a vacation. With lower interest rates, you may also get the chance to build up home equity faster by moving to a shorter-term mortgage.

The Cost

All these benefits do cost something, though. When you refinance, you're paying for most of the same things you paid for at the time you got your current mortgage loan. These probably include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.

Do the Math

Paying discount points can result in a lower interest rate. Your savings on the life of the mortgage could be substantial if you've paid up front about 3% of the new loan balance. You might have heard that points can be deducted on your income taxes, but since tax regulations are ever-changing, please consult your tax professional before making any decisions based on this.

An additional cost that a borrower might consider is that a lower interest rate will reduce the interest amount you'll deduct on your federal income taxes. Call us at 703-288-0777 to help you do the math.

Most people find that the monthly savings outweigh the initial expenses of refinancing. We can help you find out your options, considering the effect a refinance could have on your taxes, how likely you might be to sell in the next couple of years, and your cash on hand. Call us at 703-288-0777 to get you started.

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

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