Is Refinancing Worth the Cost?

Ever heard the old rule of thumb that says you should only refinance if the new interest rate is at least 2 points under your current one? Maybe several years ago that was good advice, but as refinance costs have been getting lower, it could be a good time to look into it. Refinancing has some benefits that often make it worth the initial expenditure many times over.

Advantages of Refinancing

When you refinance, you might be able to reduce your interest rate and mortgage payment amount, sometimes considerably. You also might be given the option of pulling out some of your home equity by "cashing out" a sum of money to remodel your home, consolidate debt, or take your family on a vacation. With reduced rates, you might also get the chance to build your home equity faster by switching to a shorter term mortgage loan.

Expenses and Fees

All of these benefits do come with some expense, though. With your refinance, you are paying for most of the same things you paid for when you got your current mortgage loan. These might include settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.

You might have to pay a penalty if you refinance your current loan too quickly. That depends on the terms of your present mortgage loan. Some of the penalties just apply to the first couple of years. We'll help you sort through the details: contact us at 866-300-1550.

Do the Math

You might consider paying points to reduce your interest rate. Your savings on the life of the loan may be significant if you have paid up front about 3% of the new loan balance. You may be told that points can be deducted on your income taxes, but as tax regulations can be ever-changing, please consult with a tax professional before making any decisions based on this.

Speaking of taxes, once your interest rate is reduced, it follows that you will also be lowering the interest amount that you'll be able to deduct from your federal income taxes. This is one more expense that some borrowers take into consideration. Call us at 866-300-1550 to help you do the math.

In the end, for most the total of initial costs to refinance are made up very quickly in savings each month. We can help you figure out what your options are, considering the effect a refinance may have on your taxes, if you are likely to sell your home in the near future, and your money on hand. Call us at 866-300-1550 to get started.