Weighing the Options of Refinancing
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Have you ever heard the pearl of wisdom that states you should only consider refinancing if the new interest rate will be at least two points below your present one? Maybe that was good advice a number of years ago, but as refinance costs have been getting lower, it could be time to look into it. Refinancing has various advantages that will often make it worth the initial cost several times over.
Advantages
You might be able to lower your interest rate (sometimes by a lot) and make smaller monthly payments with a refinanced mortgage loan. You could also be able to "cash out" some of your home equity, which you may use to consolidate debts, improve your home, or take a vacation. You may be able to refinance into a shorter-term mortgage loan, enabling you to build up your equity quicker.
Fees and Expenses
All these advantages do come with some expense, though. When you refinance, you are paying for many of the same things you were charged for at the time you obtained your existing mortgage. Among these may be settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.
Do the Math
You might offer to pay points (prepaid interest) to gain a better rate of interest. The money you'll save on the life of the mortgage could be significant if you've paid up front about three percent of the new loan total. Please consult a tax professional before acting on advice that any points paid may be deducted on your federal income taxes.
One more expense that borrowers might consider is that a reduced interest rate will lower the interest amount you'll deduct on your federal income taxes. We can help you do the math! Call us at 805-636-9222.
In the end, for most the total of up-front costs to refinance are paid back very quickly in savings each month. We will work with you to figure out what loan program is perfect for you, taking into account your cash on hand, the likelihood of selling your home in the near future, and the effect refinancing will probably have on your taxes. Call us at 805-636-9222 to get started.
Curious about refinancing your home? Give us a call at 805-636-9222.