When is Refinancing Worth it?
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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 loan. Perhaps that was good advice a number of years ago, but as refinance costs have been falling recently, it could be a good time to take a serious look. A refinanced mortgage is often worth its cost several times over, factoring in the benefits that come, in addition to a lower interest rate.
When you refinance, you could have the ability to lower your interest rate and monthly mortgage payment , sometimes by a lot. You also might have the option of pulling out some of the equity in your home by "cashing out" a sum of money to fix up your home, consolidate debt, or take your family on a vacation. With lower interest rates, you might also get the chance to build up home equity faster by switching to a shorter term loan.
Fees and Expenses
All of these benefits do come with some expense, though. With your refinance, you are paying for many of the same things you were charged for during your current mortgage. Included in the list may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
You could need to pay points (prepaid interest) to gain a more favorable interest rate. If you pay (on average) three percent of the mortgage loan amount initially, your savings for the life of the refinanced mortgage can be significant. Please consult a tax professional before acting on advice that these paid points can be deducted on your taxes.
One more expense that borrowers may consider is that a reduced interest rate will lower the interest amount you will deduct on your taxes. Call us at 708.966.9005 to help you do the math.
Ultimately, for most the amount of initial costs to refinance are made up very quickly in savings each month. We can help you explore 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 money on hand. Call us at 708.966.9005 to get started.
Curious about refinancing your home? Give us a call: 708.966.9005.