When is Refinancing Worth it?
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Have you ever heard the pearl of wisdom that says you should only consider refinancing if the new interest rate will be at least two points below your current one? Maybe several years ago that was good advice, but as refinance costs have been falling recently, it could be time to look into it. Refinancing has some benefits that can make it worth the up-front cost several times over.
When you refinance, you may have the ability to reduce the interest rate and monthly payment amount, sometimes considerably. You might also have the option to "cash out" a portion of the built-up equity in your residence, that you may use to consolidate debts, make home improvements, or finance a vacation. With lower rates, you may also be able to build your home equity faster by switching to a shorter-term loan.
All of these benefits do come with some expense, though. You will pay the same types of fees as with your existing mortgage. Included in the list might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
Paying points can help you attain a lower interest rate. If you pay (on average) 3% of the mortgage loan amount up front, the savings for the term of the new mortgage can be great. You may be told that the points can be tax deductible, but because tax regulations are ever-changing, please consult a tax professional before considering this in your calculations.
An additional cost that a borrower might consider is that a lower rate of interest will lower the interest amount you will deduct from your taxes. We can help you do the math! Call us at 530-677-2703.
Most people find that the monthly savings outweigh the up-front cost of a refinance. We can help you explore what your options are, considering the effect a refinance could have on your taxes, how likely you may be to sell in the near future, and your cash on hand. Call us at 530-677-2703 to get started.
Want to know more about refinancing? Give us a call: 530-677-2703.