When is Refinancing Worth it?
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It has been said that only when your new interest will be at least two points lower, should you refinance your mortgage. That could have been valid years ago, but since refinancing has been costing less recently, it is a good time to consider a new mortgage! A refinance is often worth its cost several times over, because of the benefits that come, as well as a lower interest rate.
You might be able to lower your interest rate (sometimes by a lot) and reduce your mortgage payment amount with a refinanced mortgage loan. You may also have the option to "cash out" some of the built-up equity in your residence, that you may use to take care of higher interest debts, make home improvements, or finance a vacation. With lower rates, you may also be able to build up home equity faster by moving to a shorter term mortgage loan.
All these advantages do cost something, though. With your refinance, you're paying for basically the same things you paid for when you got your existing mortgage. These may include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.
Doing the Math
Paying points can result in a better interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the term of the refinanced mortgage can be great. You may hear that the points may be tax deductible, but since tax regulations can be difficult to keep up with, please consult with a tax professional before making any decisions based on this.
Speaking of taxes, once your interest rate is lowered, of course you'll also be reducing the paid interest amount that you will be able to deduct from your federal income taxes. This is another cost that some borrowers take into consideration. Call us at (443) 619-7900 to help you do the math.
Most borrowers find that the monthly savings quickly outweigh the up-front cost of a refinance. We'll help you determine which mortgage program is right for you, taking into account your cash on hand, the likelihood of selling your home in the near future, and what effect refinancing could have on your taxes. Call us at (443) 619-7900 to get you started.
Want to know more about refinancing your home? Call us at (443) 619-7900.