Weighing the Options of Refinancing
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Some have said that only in the case your new interest is at least 2 points lower, should you refinance your loan. That could have been accurate years ago, but with refinancing dropping in cost recently, it's a good time to consider a new mortgage! Refinancing your mortgage loan has a variety of benefits that will often make it worth the up-front cost several times over.
You may be able to lower your interest rate (sometimes by a lot) and make smaller mortgage payments with a refinanced mortgage. You might also have the ability to "cash out" some of the built-up equity in your home, which you will be able use to take care of higher interest debt, add on to your home, or plan a vacation. With lower rates, you might also be able to build up home equity faster by changing to a shorter-term loan.
All of these advantages do come with some expense, though. With your refinance, you are paying for basically the same things you paid for at the time you obtained your existing mortgage. These could include settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.
Doing the Math
You could need to pay discount points (prepaid interest) to gain a lower interest rate. If you pay (on average) three percent of the mortgage loan amount up front, your savings for the term of the new mortgage loan can be substantial. You might be told that points can be deducted on your income taxes, but since tax regulations are ever-changing, please consult with a tax professional before depending on this.
Another thing about taxes is that if you bring down your interest rate, of course you'll also be lowering the paid interest amount that you can deduct from your federal income taxes. This is another expense that borrowers consider. We can help you do the math! Call us at (512) 292-3494.
Ultimately, for most people the amount of up-front costs to refinance are made up soon in savings each month. We'll work with you to find out which loan program is right for you, taking into account your cash on hand, the likelihood of selling your house in the near future, and how refinancing could effect your taxes. Call us at (512) 292-3494 to get started.
Curious about refinancing your home? Call us at (512) 292-3494.