When to Refinance
Some have said that only when your new interest is at least two points below your current rate, should you refinance your loan. That could have been good advice a while back, but with refinancing dropping in cost recently, it is never the wrong time to think about a new loan! A refinance is often worth its cost several times over, considering the benefits that it brings, along with a lower interest rate.
You might be able to lower your interest rate (sometimes substantially) and make smaller monthly payments with your refinanced mortgage loan. You might also have the ability to "cash out" some of the built-up equity in your home, that you can use to take care of higher interest debts, add on to your home, or finance a vacation. With lower rates, you might also be able to build your home equity faster by switching to a shorter-term mortgage.
Fees and Expenses
Of course, you will have some fees and expenses during the the refinance process. You'll have the same kinds of expenses and fees as you did with your existing mortgage loan. These may include settlement costs, appraisal fees, lender's title insurance, underwriting fees, and so on.
Doing the Math
You might offer to pay discount points (prepaid interest) to attain a better interest rate. When you pay (on average) three percent of the loan amount initially, your savings for the life of the new mortgage can be substantial. We recommend that you talk to a tax professional before acting on advice that these points paid may be deducted on your taxes.
Speaking of taxes, when you lower your interest rate, it follows that you will also be reducing the paid interest amount that you'll be able to deduct on your taxes. This is one more expense that some borrowers take into consideration.
Most borrowers find that the savings per month outweigh the initial expenses of refinancing. We can help you find out your options, considering the effect a refinance might have on your taxes, how likely you may be to sell in the near future, and your available cash.
Find out more
Interested in hearing more about our programs? Contact us or drop by one of our locations to discuss how we can help.