Weighing the Options of Refinancing
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Ever hear the pearl of wisdom that states you should only consider refinancing if the new interest rate will be at least 2 points below your current one? That might have been good advice a while back, but since refinancing has been costing less in recent years, it is a good time to consider a new mortgage! A refinance is often worth its cost many times over, factoring in the advantages that it brings, along with a reduced interest rate.
Advantages
You may be able to bring down your interest rate (sometimes by a lot) and make smaller mortgage payments with a refinanced mortgage. Additionally, you might have the option of pulling out some of the equity in your house by "cashing out" some funds to renovate your home, consolidate debt, or plan a special vacation. With lower rates, you may also be able to build up home equity more quickly by switching to a shorter-term mortgage loan.
Expenses and Fees
As you probably expect, you will have some fees and expenses during the process of refinancing. With your refinance, you're paying for many of the same things you paid for at the time you obtained your original mortgage loan. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
You might offer to pay discount points (prepaid interest) to get a more favorable rate of interest. When you pay (on average) 3% of the loan amount up front, your savings for the life of the new mortgage loan can be substantial. Please consult a tax professional before acting on hear-say that these points paid may be deducted on your federal income taxes.
An additional cost that borrowers may take into account is that a reduced rate of interest will lower the interest amount you'll deduct on your taxes. Call us at (808) 935-0678 to help you do the math.
Ultimately, for most borrowers the total of initial costs to refinance will be paid back 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 may be to sell in the next couple of years, and your available cash. Call us at (808) 935-0678 to get started.
Curious about refinancing your home? Call us: (808) 935-0678.