When is Refinancing Worth it?
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Ever hear the old rule of thumb that says you should only consider refinancing if the new interest rate will be at least 2 points below your existing one? That might have been true years ago, but since refinancing has been costing less recently, it's a good time to explore the options of a new loan! Refinancing has various benefits that will often make it worth the up-front cost several times over.
Advantages of Refinancing
You may be able to lower your interest rate (sometimes by a lot) and have smaller monthly payments with a refinanced loan. You may also be able to "cash out" a portion of your home equity, which you can use to consolidate debt, make home improvements, or finance a vacation. With reduced interest rates, you might also be able to build your home equity faster by moving to a shorter term mortgage loan.
Fees and Expenses
As you probably expect, you'll have to pay for the the refinance process. When you refinance, you're paying for a lot of the same things you were charged for during your existing mortgage. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
You could need to pay points (prepaid interest) to gain a lower interest rate. The money you will save over the life of the mortgage could be significant if you've paid up front about three percent of the new loan total. You might be told that these points can be deducted on your income taxes, but since tax regulations are difficult to keep up with, please speak with your tax professional before considering this in your calculations.
One more cost that borrowers might take into account is that a reduced interest rate will reduce the interest amount you will be able to deduct on your federal income taxes. Call us at (504) 832-3131 to help you do the math.
In the end, for most borrowers the total of initial costs to refinance are made up very quickly in monthly savings. We can help you find out your options, considering the effect a refinance may have on your taxes, if you are likely to sell your home in the near future, and your available cash. Call us at (504) 832-3131 to get started.
Want to know more about refinancing your home? Call us at (504) 832-3131.