When is Refinancing Worth it?

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Ever heard the pearl of wisdom that states you should only refinance if the new interest rate is at least 2 points below your existing rate? That could have been true a while back, but with refinancing dropping in cost in recent years, it's a good time to consider a new mortgage! Refinancing has a variety of benefits that can make it worth the initial cost a few times over.

Advantages

You could be able to lower your interest rate (sometimes substantially) and have smaller monthly payments with a refinanced loan. You may also have the option to "cash out" a portion of your equity, that you can use to consolidate debt, add on to your home, or plan a vacation. You might be able to refinance to a shorter-term mortgage program, enabling you to add to your home equity faster.

The Cost

Of course, you'll have to pay for your process of refinancing. With your refinance, you are paying for basically the same things you were charged for when you obtained your existing mortgage. Included in your costs might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Do the Math

Paying discount points can get you a lower interest rate. The amount you will save over the life of the mortgage loan could be significant if you have paid up front about 3% of the new loan total. Please consult with a tax professional before acting on hear-say that any paid points can be deducted on your federal income taxes.

Another expense that borrowers might consider is that a reduced rate of interest will reduce the interest amount you'll be able to deduct from your federal income taxes. Call us at 360-570-0106 to help you do the math.

Most people find that the monthly savings outweigh the up-front cost of a refinance. We will help you find out what program is best for you, looking at your cash on hand, how likely you are to sell your home in the next few years, and what effect refinancing may have on your taxes. Call us at 360-570-0106 to get you started.

Want to know more about refinancing? Give us a call at 360-570-0106.

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