Weighing the Options of Refinancing
Some have said that only in the case your new interest will be at least 2 points lower, should you refinance your mortgage. That might have been valid a while back, but with refinancing dropping in cost over the last few years, it is never the wrong time to explore the options of a new loan! Refinancing has a number of benefits that can make it worth the up-front cost many times over.
Advantages of Refinancing
You may be able to bring down your interest rate (sometimes substantially) and have smaller mortgage payments with your refinanced mortgage. You may also be able to "cash out" a portion of the built-up equity in your residence, that you may use to take care of higher interest debt, add on to your home, or plan a vacation. You could have the option to refinance to a shorter-term mortgage loan, giving you the ability to add to your home equity faster.
Expenses and Fees
All these benefits do come with some expense, though. When you refinance, you are paying for a lot of the same things you paid for when you got your existing mortgage. Among these will be settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.
Doing the Math
You could need to pay points (prepaid interest) to gain a lower rate of interest. The amount you'll save on the life of the mortgage might be significant if you've paid up front about three percent of the new loan total. You might have heard that points can be tax deductible, but as tax regulations can be difficult to keep up with, please consult your tax professional before considering this in your calculations.
Speaking of taxes, when your interest rate is reduced, naturally you'll also be reducing the interest amount that you can deduct from your federal income taxes. This is one more cost that some borrowers take into consideration. We can help you do the math! Call us at 859-795-1846.
In the end, for most the total 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 might have on your taxes, how likely you might be to sell in the near future, and your money on hand. Call us at 859-795-1846 to get you started.