Is Refinancing Worth the Cost?

Some have said that only if your new interest is at least 2 points below your current rate, should you refinance your mortgage. Perhaps that was sound advice a number of years ago, but since refinance costs have been getting lower, it may be time to look into it. A refinanced mortgage is often worth its cost many times over, factoring in the benefits that it brings, along with a reduced interest rate.

Advantages of Refinancing

When you refinance, you might be able to lower the interest rate and monthly mortgage payment amount, perhaps by a lot. You also could be given the option of pulling out some of your home equity by "cashing out" a sum of money to fix up your home, consolidate debt, or take your family on a vacation. You could have the option to refinance into a shorter-term mortgage program, giving you the ability to add to your home equity faster.

Expenses and Fees

All these benefits do cost something, though. You'll have to pay the same sort of fees as with your present home loan. These might include settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.

When you refinance your existing mortgage too soon, you might have a penalty to pay. It all depends on your current mortgage loan contract. However, these penalties may apply only to the first several years of the loan. We'll help you figure it out: contact us at 408-823-2321.

Doing the Math

Paying discount points can result in a better interest rate. The money you'll save over the life of the loan may be significant if you have paid up front about three percent of the new loan total. You might be told that points may be tax deductible, but because tax regulations can be ever-changing, please consult with a tax professional before making decisions based on this.

Another cost that borrowers might consider is that a reduced rate of interest will lower the interest amount you'll deduct from your federal income taxes. Call us at 408-823-2321 to help you do the math.

All things considered, for most the amount of up-front costs to refinance will be paid back soon in monthly savings. We can help you explore your options, considering the effect a refinance may have on your taxes, if you are likely to sell your home in the next couple of years, and your money on hand. Call us at 408-823-2321 to get you started.