When is Refinancing Worth it?

Ever hear the old rule of thumb that states you should only consider refinancing if the new interest rate will be at least 2 points under your current one? That may have been valid a while back, but with refinancing dropping in cost recently, it is a good time to consider a new mortgage! A refinanced mortgage loan may be worth its cost many times over, because of the advantages that may come, in addition to a lower interest rate.

Advantages of Refinancing

When you refinance, you could have the ability to reduce the interest rate and mortgage payment amount, perhaps significantly. You could also have the option to "cash out" some of the built-up equity in your home, which you may use to take care of higher interest debts, make home improvements, or finance a vacation. With lower interest rates, you may also get the chance to build up home equity more quickly by moving to a shorter term mortgage loan.

Expenses and Fees

Of course, you will have some fees and expenses during your process of refinancing. With your refinance, you are paying for many of the same things you were charged for during your original mortgage loan. Among these can be settlement costs, an appraisal, lender's title insurance, underwriting expenses, and others.

You could be obligated to pay a penalty if you refinance your current loan too soon. It all depends on your present loan agreement. However, some of these penalties apply only to the initial several years of your mortgage loan. We'll help you with the details: contact us at 408-402-5936.

Do the Math

Paying points can result in a better interest rate. The money you'll save on the life of the loan may be significant if you've paid up front about three percent of the new loan balance. Please consult a tax professional before acting on hear-say that the points paid can be deducted on your taxes.

Another thing about taxes is that when you lower your interest rate, of course you will also be reducing the paid interest amount that you will be able to deduct on your taxes. This is another expense that borrowers consider. Call us at 408-402-5936 to help you do the math.

In the end, for most the total of initial costs to refinance are paid back very quickly in savings each month. We can help you explore your options, considering the effect a refinance could have on your taxes, how likely you may be to sell in the next couple of years, and your cash on hand. Call us at 408-402-5936 to get started.