When is Refinancing Worth it?

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Ever hear the old rule of thumb that says you should only consider refinancing if the new interest rate will be at least two points below your current rate? That could have been valid a while back, but with the fact that refinancing has been costing less in recent years, it's never the wrong time to consider a new mortgage loan! Refinancing has some advantages that often make it worth the up-front cost a few times over.

Advantages

When you refinance, you could be able to reduce your interest rate and mortgage payment amount, sometimes considerably. You may also have the ability to "cash out" a portion of your home equity, which you will be able use to consolidate debts, improve your home, or take a vacation. With reduced rates, you might also be able to build up home equity more quickly by switching to a shorter term loan.

Fees and Expenses

All of these advantages do cost something, though. When you refinance, you're paying for basically the same things you were charged for during your existing mortgage loan. These probably include settlement costs, appraisal fees, lender's title insurance, underwriting fees, and others.

Doing the Math

Paying points can get you a better interest rate. Your savings on the life of the loan might be significant if you have paid up front about 3% of the new loan total. You might have heard that these points may be tax deductible, but because tax regulations can be ever-changing, please consult a tax professional before making decisions based on this.

An additional cost that borrowers might take into account is that a lower interest rate will lower the interest amount you will be able to deduct on your federal income taxes. Call us at (727) 743-1620 to help you do the math.

In the end, for most the amount of up-front costs to refinance are paid back very quickly in savings each month. We can help you figure out your options, considering the effect a refinance may have on your taxes, if you are likely to sell your home in the next couple of years, and your available cash. Call us at (727) 743-1620 to get started.

Curious about refinancing? Give us a call: (727) 743-1620.

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