Weighing the Options of Refinancing
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Ever hear the old rule of thumb that says you should only refinance if the new interest rate is at least 2 points below your current one? That may have been valid a while back, but as refinancing has been costing less over the last few years, it is never the wrong time to think about a new mortgage! A refinanced mortgage loan may be worth its cost several times over, because of the advantages that may come, along with a lower interest rate.
When you refinance, you could have the ability to reduce the interest rate and monthly payment amount, perhaps considerably. Additionally, you may be given the option of pulling out some of the equity in your house by "cashing out" a sum of money to fix up your home, consolidate debt, or take your family on a vacation. With reduced rates, you might also get the chance to build up home equity faster by moving to a shorter-term loan.
Expenses and Fees
As you probably expect, you will have to pay for the process of refinancing. With your refinance, you are paying for basically the same things you paid for during your original mortgage loan. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You could offer to pay points (prepaid interest) to get a better rate of interest. Your savings over the life of the loan might be substantial if you have paid up front about three percent of the new loan total. You might have heard that points can be deducted on your income taxes, but because tax regulations can be difficult to keep up with, we urge you to speak with a tax professional before making decisions based on this.
Another thing about taxes is that when you bring down your interest rate, naturally you'll also be reducing the paid interest amount that you may deduct from your taxes. This is one more cost that some borrowers consider. Call us at 608-592-5600 to help you do the math.
Ultimately, for most people the amount of initial costs to refinance will be made up very quickly in savings each month. We will work with you to determine what mortgage loan program is best for you, taking into account your cash on hand, the likelihood of selling your residence in the near future, and what effect refinancing could have on your taxes. Call us at 608-592-5600 to get started.
Curious about refinancing your home? Call us at 608-592-5600.