When is Refinancing Worth it?
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Some have said that only when your new interest will be at least 2 points lower, should you refinance your loan. Maybe that was good advice a number of years ago, but since refinance costs have been getting lower, it could be time to take a serious look. A refinance is often worth its cost several times over, considering the benefits that may come, in addition to a lower interest rate.
You could be able to lower your interest rate (sometimes substantially) and have smaller monthly payments with your refinanced loan. You might also have the option to "cash out" a portion of the built-up equity in your residence, which you may use to take care of higher interest debt, make home improvements, or finance a vacation. With reduced rates, you might also get the chance to build your home equity more quickly by switching to a shorter term mortgage.
Of course, you will have to pay for the process of refinancing. With your refinance, you are paying for basically the same things you paid for during your original mortgage loan. Among these may be settlement costs, appraisal fees, lender's title insurance, underwriting fees, and so on.
Do the Math
You might offer to pay discount points (prepaid interest) to attain a more favorable rate of interest. The money you'll save over the life of the mortgage loan might be substantial if you've paid up front about 3% of the new loan total. Please consult a tax professional before acting on advice that the paid points may be deducted on your federal income taxes.
One more expense that borrowers might take into account is that a reduced interest rate will reduce the interest amount you will deduct from your federal income taxes. Call us at 703-288-0777 to help you do the math.
In the end, for most borrowers the amount of initial costs to refinance will be made up very quickly in savings each month. We can help you explore what your options are, considering the effect a refinance might have on your taxes, how likely you may be to sell in the near future, and your available cash. Call us at 703-288-0777 to get you started.
Curious about refinancing? Call us at 703-288-0777.
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