Is Refinancing Worth the Cost?

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Ever heard the old rule of thumb that says you should only refinance if your new interest rate is at least 2 points below your existing rate? That might have been accurate a while back, but since refinancing has been costing less recently, it is never the wrong time to think about a new loan! Refinancing your loan has various advantages that can make it worth the up-front expenditure a few times over.

Advantages

When you refinance, you could be able to reduce your interest rate and mortgage payment amount, perhaps by a lot. Additionally, you might be given the option of tapping into your home equity by "cashing out" some funds to remodel your home, consolidate debt, or plan a special vacation. With reduced rates, you might also be able to build up home equity faster by changing to a shorter term mortgage loan.

The Cost

As you probably expect, you will have to pay for your the refinance process. With your refinance, you're paying for basically the same things you paid for at the time you got your existing mortgage loan. Among these will be settlement costs, an appraisal, lender's title insurance, underwriting expenses, and others.

Do the Math

You might investigate paying points to reduce your interest rate. The money you'll save over the life of the mortgage loan might be substantial if you have paid up front about 3% of the new loan balance. You might hear that these points may be deducted on your income taxes, but since tax regulations can be difficult to keep up with, please speak with your tax professional before depending on this.

Another thing about taxes is that when you lower your interest rate, it follows that you'll also be reducing the interest amount that you will be able to deduct from your federal income taxes. This is one more expense that some borrowers consider. Call us at 714-939-3863 to help you do the math.

Most people find that the savings each month outweigh the up-front expenses of a refinance. We will help you determine which mortgage loan program is perfect for you, looking at your cash on hand, the likelihood of selling your residence in the near future, and how refinancing might effect your taxes. Call us at 714-939-3863 to get you started.

Want to know more about refinancing your home? Give us a call: 714-939-3863.