Weighing the Options of Refinancing
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It has been said that only when your new interest will be at least two points below your current rate, should you refinance your mortgage. Perhaps that was good advice a number of years ago, but as refinance costs have been falling recently, it could be a good time to take a serious look. A refinanced mortgage is often worth its cost many times over, factoring in the benefits that come, along with a lower interest rate.
When you refinance, you might have the ability to lower the interest rate and mortgage payment amount, perhaps by a lot. You might also have the ability to "cash out" a portion of the built-up equity in your residence, that you can use to take care of higher interest debts, add on to your home, or plan a vacation. With reduced interest rates, you might also be able to build up home equity more quickly by switching to a shorter-term mortgage.
Fees and Expenses
All of these benefits do cost something, though. With your refinance, you're paying for basically the same things you were charged for during your current mortgage loan. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
Paying discount points can get you a better interest rate. If you pay (on average) 3% of the mortgage loan amount at the start, the savings for the life of the refinanced loan can be substantial. You might hear that points can be deducted on your income taxes, but because tax regulations are ever-changing, we urge you to consult with a tax professional before depending on this.
Speaking of taxes, when you lower your interest rate, it follows that you'll also be lowering the paid interest amount that you will be able to deduct on your federal income taxes. This is one more cost that some borrowers take into consideration. Call us at (860) 658-7100 to help you do the math.
Ultimately, for most borrowers the amount of up-front costs to refinance will be paid back very quickly in savings each month. We will help you determine which mortgage loan program is perfect for you, taking into account your cash on hand, how likely you are to sell your home in the next few years, and the effect refinancing will probably have on your taxes. Call us at (860) 658-7100 to get started.
Want to know more about refinancing? Give us a call at (860) 658-7100.