When is Refinancing Worth it?
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Ever heard the old rule of thumb that says you should only consider refinancing if the new interest rate will be at least two points below your existing rate? Maybe that was good advice several years ago, but since refinance costs have been falling recently, it may be time to look into it. Refinancing your loan has various benefits that often make it worth the initial cost several times over.
Benefits
When you refinance, you might have the ability to lower your interest rate and monthly mortgage payment amount, perhaps by a lot. You also might have the option of pulling out some of your home equity by "cashing out" some funds to fix up your home, consolidate debt, or plan a special vacation. You could be able to refinance into a shorter-term mortgage program, enabling you to add to your home equity quicker.
Expenses and Fees
All these benefits do cost something, though. With your refinance, you are paying for a lot of the same things you paid for at the time you got your current mortgage loan. Among these might be settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and so on.
Do the Math
You could need to pay discount points (prepaid interest) to get a better rate of interest. When you pay (on average) three percent of the loan amount initially, your savings for the term of the refinanced mortgage can be substantial. You may hear that these points can be tax deductible, but since tax regulations are ever-changing, please consult with a tax professional before depending on this.
One more cost that a borrower may take into account is that a lower rate of interest will reduce the interest amount you will deduct on your federal income taxes. Call us at (808) 935-0678 to help you do the math.
Most borrowers find that the savings each month outweigh the up-front expenses of refinancing. We'll work with you to figure out which loan program is the ideal fit for you, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing may have on your taxes. Call us at (808) 935-0678 to get you started.
Want to know more about refinancing your home? Call us: (808) 935-0678.