Weighing the Options of Refinancing
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Ever heard the old rule of thumb that states you should only consider refinancing if the new interest rate is at least two points lower than your existing one? That could have been accurate 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 can be worth its cost many times over, considering the benefits that can come, in addition to a reduced interest rate.
Advantages of Refinancing
When you refinance, you could be able to reduce the interest rate and monthly payment , sometimes significantly. You could also be able to "cash out" some of your equity, that you are able use to consolidate debt, make home improvements, or take a vacation. With reduced interest rates, you might also be able to build your home equity more quickly by changing to a shorter-term mortgage.
The Cost
All these benefits do come with some expense, though. With your refinance, you are paying for many of the same things you were charged for when you obtained your current mortgage loan. Included in your costs will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might investigate paying points to be given a reduced interest rate. If you pay (on average) 3% of the mortgage loan amount up front, your savings for the term of the refinanced mortgage loan can be significant. You might hear that the points can be tax deductible, but since tax regulations are difficult to keep up with, we urge you to consult your tax professional before depending on this.
Another thing about taxes is that if you lower your interest rate, it follows that you'll also be reducing the paid interest amount that you may deduct on your taxes. This is another cost that borrowers take into consideration. We can help you do the math! Call us at 610-565-3600.
Ultimately, for most people the amount of up-front costs to refinance are paid back very quickly in monthly savings. We can help you explore what your options are, considering the effect a refinance could have on your taxes, if you are likely to sell your home in the next couple of years, and your available cash. Call us at 610-565-3600 to get started.
Want to know more about refinancing? Give us a call at 610-565-3600.