When is Refinancing Worth it?
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Some have said that only in the case your new interest will be at least 2 points below your current rate, should you refinance your loan. That could have been valid a while back, but with refinancing dropping in cost in recent years, it's never the wrong time to explore the options of a new loan! A refinance is often worth its cost many times over, because of the advantages that may come, along with a reduced interest rate.
Benefits from Refinancing
You may be able to bring down your interest rate (sometimes substantially) and reduce your mortgage payment amount with your refinanced loan. You might also have the option to "cash out" a portion of the built-up equity in your residence, which you are able use to consolidate debts, add on to your home, or finance a vacation. With reduced interest rates, you might also get the chance to build your home equity more quickly by changing to a shorter-term mortgage.
As you probably expect, you will have to pay for the the refinance process. With your refinance, you're paying for basically the same things you paid for during your existing mortgage loan. Among these will be settlement costs, an appraisal, lender's title insurance, underwriting expenses, and others.
Doing the Math
You might offer to pay discount points (prepaid interest) to get a more favorable rate of interest. The amount you'll save on the life of the mortgage loan could be significant if you have paid up front about three percent of the new loan balance. You may be told that these points can be tax deductible, but because tax regulations are difficult to keep up with, please consult with your tax professional before depending on this.
Another thing about taxes is that when your interest rate is reduced, it follows that you will also be reducing the paid interest amount that you'll be able to deduct on your federal income taxes. This is another cost that borrowers take into account. We can help you do the math! Call us at 804-768-9519.
Most borrowers find that the monthly savings balance out the up-front expenses of a refinance. We can help you explore what your options are, considering the effect a refinance might have on your taxes, whether you are likely to sell your home in the near future, and your money on hand. Call us at 804-768-9519 to get you started.