When is Refinancing Worth it?
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It has been said that only if your new interest is at least two points below your current rate, should you refinance your loan. Maybe that was good advice a number of years ago, but as refinance costs have been falling recently, it may be a good time to take a serious look. Refinancing has a variety of benefits that can make it worth the up-front cost a few times over.
When you refinance, you may be able to reduce your interest rate and monthly mortgage payment amount, sometimes significantly. You may also have the ability to "cash out" some of the built-up equity in your home, which you may use to consolidate debts, improve your home, or finance a vacation. With reduced rates, you may also get the chance to build up home equity more quickly by switching to a shorter-term mortgage loan.
Fees and Expenses
All these benefits do cost something, though. You will pay the same sort of fees as you did with your current mortgage loan. Among these can be settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and so on.
Doing the Math
You could offer to pay discount points (prepaid interest) to gain a more favorable rate of interest. Your savings on the life of the mortgage loan could be substantial if you have paid up front about 3% of the new loan balance. We recommend that you consult a tax professional before acting on hear-say that any paid points can be deducted on your federal income taxes.
Speaking of taxes, if you lower your interest rate, naturally you'll also be reducing the paid interest amount that you'll be able to deduct from your taxes. This is another cost that borrowers take into consideration. Call us at 718-441-7000 to help you do the math.
All things considered, for most the total of initial costs to refinance are paid back soon in monthly savings. 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 money on hand. Call us at 718-441-7000 to get started.
Want to know more about refinancing your home? Give us a call at 718-441-7000.