Is Refinancing Worth the Cost?
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Ever hear the pearl of wisdom that states you should only refinance if your new interest rate will be at least two points below your present one? That could have been true a while back, but with the fact that refinancing has been costing less in recent years, it's never the wrong time to consider a new mortgage! Refinancing has a variety of advantages that will often make it worth the initial expenditure a few times over.
Advantages of Refinancing
You may be able to bring down your interest rate (sometimes by a lot) and make smaller monthly payments with a refinanced mortgage. Additionally, you could be given the option of pulling out some of the equity in your property by "cashing out" a sum of money to remodel your home, consolidate debt, or take your family on a vacation. You may have the option to refinance into a shorter-term mortgage, giving you the ability to build up your home equity faster.
All of these advantages do come with some expense, though. When you refinance, you are paying for basically the same things you paid for during your original mortgage loan. Included in your costs will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might offer to pay points (prepaid interest) to attain a lower rate of interest. When you pay (on average) 3% of the loan amount up front, the savings for the life of the new mortgage can be substantial. We recommend that you talk to a tax professional before acting on rumors that any paid points may be deducted on your taxes.
An additional expense that a borrower may take into account is that a lower rate of interest will lower the interest amount you'll deduct from your federal income taxes. Call us at (860) 658-7100 to help you do the math.
Most people find that the savings each month outweigh the initial cost of a refinance. 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 near future, and your cash on hand. Call us at (860) 658-7100 to get started.
Curious about refinancing? Give us a call: (860) 658-7100.