Weighing the Options of Refinancing
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Some have said that only when your new interest will be at least two points under your current rate, should you refinance your loan. Maybe that was sound advice several years ago, but as refinance costs have been getting lower, it may be time to look into it. Refinancing has various benefits that will often make it worth the up-front cost a few times over.
Advantages
When you refinance, you may have the ability to reduce the interest rate and monthly payment amount, sometimes by a lot. You might also have the option to "cash out" a portion of the built-up equity in your residence, which you will be able use to consolidate debts, add on to your home, or finance a vacation. You might have the option to refinance to a shorter-term mortgage program, giving you the ability to build your equity faster.
Fees and Expenses
All these benefits do come with some expense, though. When you refinance, you're paying for a lot of the same things you paid for when you got your existing mortgage loan. Among these can be settlement costs, appraisal fees, lender's title insurance, underwriting fees, and others.
Do the Math
Paying discount points can get you a better interest rate. The money you'll save on the life of the mortgage could be substantial if you've paid up front about 3% of the new loan balance. You might be told that points may be tax deductible, but since tax regulations can be ever-changing, please consult a tax professional before considering this in your calculations.
Another thing about taxes is that if your interest rate is lowered, of course you will also be reducing the paid interest amount that you can deduct on your taxes. This is one more cost that some borrowers consider. Call us at (510) 682-3792 to help you do the math.
Most borrowers find that the savings per month outweigh the up-front cost of a refinance. We will work with you to figure out what mortgage loan program is ideal for you, taking into account your cash on hand, the likelihood of selling your home in the next few years, and how refinancing can effect your taxes. Call us at (510) 682-3792 to get you started.
Want to know more about refinancing? Call us at (510) 682-3792.