Weighing the Options of Refinancing
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It has been said that only in the case your new interest will be at least 2 points lower, should you refinance your mortgage. Maybe several years ago that was sage advice, but since refinance costs have been falling recently, it may be time to look into it. A refinanced mortgage loan is often worth its cost several times over, factoring in the advantages that it brings, in addition to a reduced interest rate.
Advantages of Refinancing
When you refinance, you may have the ability to lower the interest rate and mortgage payment , sometimes by a lot. Additionally, you may have the option of tapping into your home equity by "cashing out" some funds to remodel your home, consolidate debt, or plan a special vacation. With lower rates, you might also be able to build your home equity faster by changing to a shorter term mortgage.
Fees and Expenses
All of these benefits do come with some expense, though. With your refinance, you are paying for basically the same things you were charged for during your original mortgage. These probably include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.
Please note that by refinancing your existing loan, your total finance charges may be higher over the life of the loan.
Doing the Math
You might offer to pay points (prepaid interest) to gain a better rate of interest. The amount you'll save on the life of the mortgage might be significant if you have paid up front about 3% of the new loan balance. Please consult with a tax professional before acting on rumors that the paid points may be deducted on your taxes.
Speaking of taxes, when you lower your interest rate, of course you will also be lowering the interest amount that you'll be able to deduct on your taxes. This is one more cost that some borrowers take into account. Call us at (434) 975-5626 to help you do the math.
In the end, for most people the amount of up-front costs to refinance are made up soon in savings each month. We can help you find out what your options are, considering the effect a refinance may have on your taxes, how likely you might be to sell in the next couple of years, and your available cash. Call us at (434) 975-5626 to get you started.
Curious about refinancing your home? Give us a call at (434) 975-5626.