Is Refinancing Worth the Cost?
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Have you ever heard the old rule of thumb that says you should only refinance if your new interest rate is at least 2 points lower than your existing one? Maybe that was good advice a number of years ago, but since refinance costs have been falling recently, it could be time to take a serious look. A refinanced mortgage can be worth its cost several times over, because of the benefits that it brings, in addition to a lower interest rate.
Benefits from Refinancing
You could be able to lower your interest rate (sometimes substantially) and make smaller monthly payments with a refinanced loan. You may also have the option to "cash out" a portion of the built-up equity in your residence, that you are able use to consolidate debt, make home improvements, or plan a vacation. With reduced interest rates, you might also be able to build your home equity more quickly by switching to a shorter term mortgage loan.
Expenses and Fees
Of course, you will have some fees and expenses during your the refinance process. You'll pay the same kinds of expenses and fees as you did with your current mortgage. Included in your costs may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
Paying points can get you a better interest rate. When you pay (on average) 3% of the mortgage loan amount initially, your savings for the term of the new mortgage can be substantial. You may have heard that points may be deducted on your income taxes, but as tax regulations are difficult to keep up with, we urge you to consult with a tax professional before considering this in your calculations.
Speaking of taxes, if you lower your interest rate, it follows that you'll also be lowering the interest amount that you'll be able to deduct on your federal income taxes. This is another expense that borrowers take into account. We can help you do the math! Call us at (860) 658-7100.
In the end, for most borrowers the amount of up-front costs to refinance are paid back soon in monthly savings. We can help you figure out what your options are, considering the effect a refinance may have on your taxes, how likely you may be to sell in the near future, and your available cash. Call us at (860) 658-7100 to get you started.
Curious about refinancing? Give us a call at (860) 658-7100.