Is Refinancing Worth the Cost?
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Some have said that only when your new interest is at least two points lower, should you refinance your loan. That could have been valid years ago, but with refinancing dropping in cost in recent years, it is a good time to explore the options of a new loan! Refinancing has various advantages that can make it worth the up-front cost a few times over.
Benefits from Refinancing
When you refinance, you may be able to lower the interest rate and monthly payment amount, sometimes significantly. Additionally, you might be given the option of pulling out some of the equity in your home by "cashing out" a sum of money to renovate your home, consolidate debt, or plan a special vacation. With reduced rates, you may also be able to build your home equity more quickly by moving to a shorter term loan.
All these advantages do come with some expense, though. You'll pay the same kinds of expenses and fees as with your existing mortgage. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
Paying points can result in a lower interest rate. The amount you will save over the life of the loan could be significant if you've paid up front about three percent of the new loan balance. You might be told that the points may be tax deductible, but because tax regulations are difficult to keep up with, we urge you to consult with a tax professional before considering this in your calculations.
Speaking of taxes, when you reduce your interest rate, it follows that you will also be lowering the interest amount that you'll be able to deduct from your federal income taxes. This is one more expense that some borrowers consider. Call us at 708.966.9005 to help you do the math.
Most borrowers find that the monthly savings outweigh the initial cost of refinancing. We can help you find out what your options are, considering the effect a refinance may have on your taxes, whether you are likely to sell your home in the next couple of years, and your cash on hand. Call us at 708.966.9005 to get you started.
Want to know more about refinancing your home? Give us a call at 708.966.9005.