Weighing the Options of Refinancing

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Have you ever heard the old rule of thumb that says you should only refinance if your new interest rate will be at least two points below your present one? That could have been good advice a while back, but with refinancing dropping in cost in recent years, it's a good time to explore the options of a new loan! A refinance is often worth its cost many times over, factoring in the advantages that it brings, as well as a reduced interest rate.

Benefits

You may be able to lower your interest rate (sometimes substantially) and reduce your mortgage payment amount with your refinanced mortgage. You could also be able to "cash out" a portion of the built-up equity in your home, which you may use to consolidate debt, make home improvements, or take a vacation. You might have the option to refinance into a shorter-term mortgage, enabling you to build up your home equity faster.

Expenses and Fees

Of course, you'll have some fees and expenses during the the refinance process. When you refinance, you are paying for most of the same things you were charged for during your existing mortgage loan. These could include settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.

Doing the Math

You could offer to pay points (prepaid interest) to gain a better rate of interest. The money you'll save on the life of the loan could be significant if you've paid up front about 3% of the new loan total. We recommend that you consult a tax professional before acting on rumors that the paid points can be deducted on your federal income taxes.

An additional expense that borrowers may consider is that a reduced rate of interest will reduce the interest amount you will deduct on your federal income taxes. We can help you do the math! Call us at 858-459-8700.

Most borrowers find that the monthly savings quickly balance out the up-front expenses of a refinance. We will help you determine what mortgage program is ideal for you, looking at your cash on hand, how likely you are to sell your house in the next few years, and the effect refinancing could have on your taxes. Call us at 858-459-8700 to get started.

Want to know more about refinancing? Give us a call: 858-459-8700.