When is Refinancing Worth it?
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It has been said that only when your new interest is at least 2 points below your current rate, should you refinance your loan. That may have been true years ago, but as refinancing has been costing less in recent years, it's a good time to explore the options of a new mortgage! A refinance can be worth its cost many times over, because of the benefits that it brings, as well as a lower interest rate.
Benefits from Refinancing
You may be able to bring down your interest rate (sometimes by a lot) and have smaller monthly payments with your refinanced mortgage loan. Additionally, you may be given the option of pulling out some of your home equity by "cashing out" some funds to remodel your home, consolidate debt, or plan a special vacation. With lower interest rates, you may also be able to build up home equity faster by changing to a shorter term mortgage loan.
Expenses and Fees
As you probably expect, you will have to pay for the process of refinancing. With your refinance, you are paying for most of the same things you were charged for at the time you got your current mortgage loan. Included in the list may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
You could need to pay points (prepaid interest) to get a more favorable rate of interest. The amount you'll save over the life of the mortgage loan could be substantial if you've paid up front about 3% of the new loan total. You may hear that the points may be deducted on your income taxes, but as tax regulations can be ever-changing, we urge you to consult with your tax professional before considering this in your calculations.
Another expense that a borrower may consider is that a lower rate of interest will reduce the interest amount you will be able to deduct on your taxes. We can help you do the math! Call us at (985) 429-1770.
Most borrowers find that the monthly savings quickly balance out the up-front cost of refinancing. We will work with you to determine what mortgage loan program is the best fit for you, considering your cash on hand, the likelihood of selling your home in the near future, and what effect refinancing will probably have on your taxes. Call us at (985) 429-1770 to get started.
Curious about refinancing your home? Give us a call: (985) 429-1770.