Is Refinancing Worth the Cost?

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Ever heard the old rule of thumb that says you should only refinance if your new interest rate will be at least two points lower than your existing one? Maybe several years ago that was good advice, but as refinance costs have been falling recently, it could be time to take a serious look. Refinancing has some benefits that can make it worth the initial cost a few times over.

Advantages

You could be able to bring down your interest rate (sometimes by a lot) and make smaller monthly payments with a refinanced mortgage. You might also be able to "cash out" some of your equity, that you may use to take care of higher interest debts, add on to your home, or finance a vacation. With reduced interest rates, you might also get the chance to build up home equity faster by changing to a shorter-term loan.

Fees and Expenses

All of these advantages do cost something, though. You will be charged the same types of fees as you did with your present home loan. Among these can be settlement costs, appraisal fees, lender's title insurance, underwriting fees, and others.

Do the Math

Paying points can get you a lower interest rate. If you pay (on average) 3% of the loan amount at the start, the savings for the life of the refinanced mortgage can be substantial. We recommend that you consult with a tax professional before acting on rumors that the points paid can be deducted on your federal income taxes.

An additional expense that a borrower may consider is that a lower rate of interest will reduce the interest amount you will be able to deduct on your federal income taxes. Call us at 562-818-3502 to help you do the math.

All things considered, for most people the total of up-front costs to refinance are paid back very quickly in monthly savings. We will work with you to find out which mortgage loan program is right for you, looking at your cash on hand, the likelihood of selling your home in the next few years, and what effect refinancing could have on your taxes. Call us at 562-818-3502 to get you started.

Want to know more about refinancing your home? Give us a call: 562-818-3502.