When is Refinancing Worth it?
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Ever heard the old rule of thumb that says you should only consider refinancing if your new interest rate will be at least 2 points lower than your current one? Perhaps that was sound advice a number of years ago, but since refinance costs have been falling recently, it may be time to look into it. Refinancing has a variety of benefits that will often make it worth the up-front expenditure many times over.
You might be able to bring down your interest rate (sometimes significantly) and reduce your mortgage payment amount with your refinanced loan. You might also have the ability to "cash out" a portion of the built-up equity in your home, that you can use to take care of higher interest debts, add on to your home, or finance a vacation. You might be able to refinance to a shorter-term mortgage, giving you the ability to build your home equity quicker.
All of these advantages do cost something, though. With your refinance, you are paying for basically the same things you paid for when you obtained your existing mortgage. Included in the list will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might need to pay discount points (prepaid interest) to attain a better interest rate. 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. We recommend that you consult a tax professional before acting on hear-say that the paid points can be deducted on your taxes.
Another thing about taxes is that once your interest rate is lowered, of course you will also be lowering the paid interest amount that you'll be able to deduct on your federal income taxes. This is another cost that some borrowers take into account. We can help you do the math! Call us at 503-657-3311.
Most people find that the monthly savings balance out the up-front cost of refinancing. We'll help you find out which loan program is perfect for you, considering your cash on hand, how likely you are to sell your residence in the near future, and the effect refinancing will probably have on your taxes. Call us at 503-657-3311 to get you started.
Want to know more about refinancing? Give us a call: 503-657-3311.