When is Refinancing Worth it?
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Have you ever heard the pearl of wisdom that says you should only consider refinancing if your new interest rate will be at least 2 points lower than your current rate? That could have been valid years ago, but as refinancing has been costing less recently, it is a good time to think about a new mortgage loan! Refinancing your mortgage has various advantages that often make it worth the up-front expenditure several times over.
When you refinance, you could be able to reduce your interest rate and monthly mortgage payment amount, sometimes considerably. You may also be able to “cash out” a portion of your home equity, which you may use to take care of higher interest debt, make home improvements, or finance a vacation. With reduced rates, you might also get the chance to build your home equity more quickly by changing to a shorter term loan.
As you probably know, you will have to pay for your the refinance process. When you refinance, you are paying for basically the same things you paid for when you got your existing mortgage. Among these will be settlement costs, appraisal fees, lender’s title insurance, underwriting expenses, and others.
Do the Math
You might need to pay points (prepaid interest) to gain a better rate of interest. Your savings over the life of the mortgage loan may be significant if you have paid up front about 3% of the new loan balance. Please consult a tax professional before acting on hear-say that the paid points can be deducted on your federal income taxes.
Speaking of taxes, when your interest rate is reduced, it follows that you will also be lowering the paid interest amount that you’ll be able to deduct on your taxes. This is another expense that some borrowers take into account. We can help you do the math! Call us at (970) 577-9200.
Ultimately, for most the amount of initial costs to refinance are paid back very quickly in savings each month. We will help you determine which program is ideal for you, taking into account your cash on hand, the likelihood of selling your residence in the next few years, and the effect refinancing will have on your taxes. Call us at (970) 577-9200 to get started.
Curious about refinancing your home? Give us a call at (970) 577-9200.