When is Refinancing Worth it?


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Have you ever heard the old rule of thumb that states you should only consider refinancing if your new interest rate is at least 2 points under your current one? Maybe several years ago that was good advice, but since refinance costs have been getting lower, it may be a good time to take a serious look. A refinance is often worth its cost many times over, factoring in the benefits that may come, in addition to a reduced interest rate.

Advantages of Refinancing

When you refinance, you could be able to lower the interest rate and monthly payment , perhaps considerably. You also might be given the option of pulling out some of your home equity by "cashing out" some money to fix up your home, consolidate debt, or take your family on a vacation. You could have the option to refinance into a shorter-term mortgage loan, enabling you to build up your home equity faster.

Expenses and Fees

As you probably know, you will have to pay for the process of refinancing. When you refinance, you're paying for a lot of the same things you were charged for when you obtained your original mortgage. These could include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and so on.

Do the Math

You might need to pay discount points (prepaid interest) to attain a better rate of interest. When you pay (on average) three percent of the mortgage loan amount at the start, your savings for the life of the new mortgage can be substantial. Please consult with a tax professional before acting on hear-say that these paid points may be deducted on your taxes.

Another thing about taxes is that once your interest rate is lowered, of course you'll also be reducing the interest amount that you will be able to deduct from your taxes. This is one more cost that some borrowers take into account. We can help you do the math!

Ultimately, for most the total of initial costs to refinance will be made up very quickly in savings each month. We can help you find out what your options are, considering the effect a refinance might have on your taxes, if you are likely to sell your home in the next couple of years, and your available cash.