Is Refinancing Worth the Cost?

Ever heard the pearl of wisdom that states you should only consider refinancing if your new interest rate will be at least 2 points below your current rate? Maybe that was good advice a number of years ago, but since refinance costs have been getting lower, it may be a good time to look into it. Refinancing has various benefits that often make it worth the initial expenditure many times over.

Advantages of Refinancing

You could be able to lower your interest rate (sometimes significantly) and reduce your monthly mortgage payment amount with a refinanced mortgage. Additionally, you might have the option of pulling out some of your home equity by "cashing out" some funds to fix up your home, consolidate debt, or plan a special vacation. With lower interest rates, you may also be able to build your home equity faster by switching to a shorter-term mortgage.

Expenses and Fees

All these advantages do come with some expense, though. With your refinance, you're paying for basically the same things you paid for during your current mortgage. Included in the list may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

When you refinance your existing mortgage too quickly, you might have a penalty . It all depends on your present mortgage loan agreement. However, this kind of penalty could apply just to the initial few years of your mortgage. We will help you sort through the details: contact us at 714-713-9193.

Do the Math

You might consider paying points to get a reduced interest rate. Your savings over the life of the mortgage loan may be substantial if you have paid up front about 3% of the new loan total. You may be told that points can be tax deductible, but since tax regulations can be difficult to keep up with, please speak with your tax professional before depending on this.

Another thing about taxes is that if your interest rate is reduced, it follows that you will also be lowering the paid interest amount that you will be able to deduct from your federal income taxes. This is one more cost that borrowers take into account. Call us at 714-713-9193 to help you do the math.

Ultimately, for most people the amount of up-front costs to refinance will be paid back soon in savings each month. 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 near future, and your available cash. Call us at 714-713-9193 to get you started.