Weighing the Options of Refinancing
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Ever hear the old rule of thumb that says you should only refinance if the new interest rate is at least two points lower than your existing rate? Perhaps that was sound advice several years ago, but as refinance costs have been getting lower, it could be a good time to take a serious look. A refinanced loan may be worth its cost many times over, because of the advantages that it brings, as well as a reduced interest rate.
Benefits
You may be able to bring down your interest rate (sometimes substantially) and reduce your monthly mortgage payment amount with your refinanced loan. You might also be able to "cash out" a portion of your home equity, that you will be able use to consolidate debts, add on to your home, or take a vacation. You may be able to refinance into a shorter-term mortgage program, giving you the ability to add to your home equity quicker.
The Cost
All of these benefits do cost something, though. With your refinance, you're paying for basically the same things you paid for during your existing mortgage loan. Among these might be settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.
Do the Math
Paying points can get you a better interest rate. When you pay (on average) 3% of the loan amount initially, your savings for the life of the new loan can be substantial. You may hear that these points may be deducted on your income taxes, but because tax regulations can be ever-changing, please consult with a tax professional before considering this in your calculations.
Another thing about taxes is that when your interest rate is reduced, it follows that you will also be reducing the interest amount that you'll be able to deduct on your taxes. This is another expense that borrowers take into account. Call us at (281) 778-0805 to help you do the math.
In the end, for most people the total of initial costs to refinance will be made up soon in savings each month. We can help you figure out what your options are, considering the effect a refinance could have on your taxes, how likely you might be to sell in the next couple of years, and your cash on hand. Call us at (281) 778-0805 to get started.
Curious about refinancing your home? Give us a call: (281) 778-0805.