Weighing the Options of Refinancing
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Have you ever heard the old rule of thumb that says you should only refinance if the new interest rate is at least two points lower than your existing rate? Perhaps that was good advice a number of years ago, but since refinance costs have been falling recently, it could be time to look into it. A refinance is often worth its cost several times over, considering the benefits that it brings, as well as a lower interest rate.
When you refinance, you could have the ability to reduce your interest rate and monthly payment , perhaps by a lot. You also could have the option of tapping into the equity in your house by "cashing out" some money to renovate your home, consolidate debt, or take your family on a vacation. You might be able to refinance to a shorter-term mortgage, giving you the ability to build your equity faster.
Expenses and Fees
All of these advantages do come with some expense, though. With your refinance, you're paying for most of the same things you were charged for during your current mortgage. Among these can be settlement costs, appraisal fees, lender's title insurance, underwriting fees, and others.
Doing the Math
Paying points can help you attain a better interest rate. Your savings over the life of the loan may be significant if you've paid up front about 3% of the new loan total. We recommend that you consult a tax professional before acting on hear-say that any paid points can be deducted on your taxes.
One more cost that borrowers may consider is that a reduced rate of interest will lower the interest amount you'll deduct on your federal income taxes. Call us at 708.966.9005 to help you do the math.
Ultimately, for most borrowers the amount of up-front costs to refinance will be paid back very quickly in monthly savings. We'll help you find out which loan program is right for you, considering your cash on hand, the likelihood of selling your home in the near future, and what effect refinancing may have on your taxes. Call us at 708.966.9005 to get you started.
Want to know more about refinancing? Give us a call: 708.966.9005.