Weighing the Options of Refinancing
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Have you ever heard the old rule of thumb that says you should only consider refinancing if the new interest rate will be at least 2 points under your current rate? Maybe that was sound advice a number of years ago, but as refinance costs have been falling recently, it could be time to look into it. Refinancing has a number of advantages that will often make it worth the up-front cost a few times over.
When you refinance, you could be able to reduce your interest rate and monthly payment amount, perhaps significantly. You could also be able to "cash out" some of your home equity, which you may use to consolidate debts, improve your home, or finance a vacation. You may be able to refinance to a shorter-term mortgage, enabling you to build up your home equity faster.
Expenses and Fees
As you probably expect, you'll have to pay for the process of refinancing. With your refinance, you are paying for basically the same things you were charged for during your existing mortgage. Among these can be settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.
Doing the Math
You might offer to pay points (prepaid interest) to gain a lower interest rate. When you pay (on average) three percent of the loan amount up front, your savings for the term of the refinanced mortgage can be substantial. You might have heard that these points may be tax deductible, but because tax regulations can be difficult to keep up with, please consult with a tax professional before considering this in your calculations.
Another thing about taxes is that once you lower your interest rate, of course you will also be lowering the interest amount that you'll be able to deduct on your federal income taxes. This is one more cost that borrowers take into consideration. We can help you do the math! Call us at (860) 658-7100.
All things considered, for most borrowers the amount of initial costs to refinance will be made up very quickly in savings each month. We will help you find out what loan program is ideal for you, looking at your cash on hand, the likelihood of selling your house in the next few years, and the effect refinancing may have on your taxes. Call us at (860) 658-7100 to get you started.
Want to know more about refinancing your home? Call us at (860) 658-7100.