When is Refinancing Worth it?

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Some have said that only when your new interest is at least 2 points under your current rate, should you refinance your loan. Perhaps several years ago that was wise advice, but since refinance costs have been getting lower, it may be time to look into it. Refinancing has a variety of advantages that can make it worth the up-front expenditure a few times over.

Advantages

You could be able to bring down your interest rate (sometimes substantially) and make smaller mortgage payments with your refinanced loan. You may also have the ability to "cash out" a portion of the built-up equity in your residence, that you can use to take care of higher interest debts, improve your home, or take a vacation. With reduced rates, you might also be able to build your home equity faster by changing to a shorter term mortgage loan.

Fees and Expenses

As you probably know, you will have to pay for your process of refinancing. With your refinance, you are paying for basically the same things you paid for at the time you got your existing mortgage loan. These might include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and so on.

Do the Math

You might need to pay points (prepaid interest) to gain a lower rate of interest. When you pay (on average) 3% of the loan amount initially, your savings for the life of the new mortgage can be great. We recommend that you consult with a tax professional before acting on advice that these paid points can be deducted on your taxes.

Another expense that borrowers may consider is that a lower interest rate will reduce the interest amount you will deduct from your federal income taxes. Call us at 708.966.9005 to help you do the math.

Most people find that the monthly savings balance out the up-front expenses of refinancing. We can help you find out what your options are, considering the effect a refinance could have on your taxes, how likely you may be to sell in the next couple of years, and your available cash. Call us at 708.966.9005 to get you started.

Curious about refinancing? Give us a call at 708.966.9005.

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