Weighing the Options of Refinancing
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It has been said that only when your new interest will be at least two points under your current rate, should you refinance your mortgage. Perhaps several years ago that was sage advice, but since refinance costs have been getting lower, it could be time to take a serious look. A refinance may be worth its cost many times over, factoring in the benefits that come, as well as a lower interest rate.
When you refinance, you may be able to reduce the interest rate and monthly payment amount, perhaps by a lot. You may also have the option to "cash out" a portion of the built-up equity in your home, that you are able use to take care of higher interest debt, make home improvements, or take a vacation. With reduced rates, you may also be able to build your home equity faster by switching to a shorter-term loan.
Fees and Expenses
All of these advantages do cost something, though. You'll have to pay the same kinds of fees as with your existing home loan. These probably include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.
Doing the Math
You could need to pay discount points (prepaid interest) to get a more favorable rate of interest. When you pay (on average) 3% of the mortgage loan amount initially, the savings for the term of the refinanced mortgage can be substantial. You might have heard that the points may be deducted on your income taxes, but as tax regulations can be difficult to keep up with, please speak with your tax professional before making any decisions based on this.
An additional cost that a borrower may take into account is that a reduced rate of interest will reduce the interest amount you will deduct on your federal income taxes. Call us at (513) 713-1515 to help you do the math.
Most people find that the savings each month outweigh the up-front cost of refinancing. We can help you figure out your options, considering the effect a refinance could have on your taxes, how likely you may be to sell in the next couple of years, and your cash on hand. Call us at (513) 713-1515 to get started.
Want to know more about refinancing your home? Call us at (513) 713-1515.