Some have said that only in the case your new interest will be at least 2 points lower, should you refinance your mortgage. That rule of thumb doesn't fit every borrower: whether a refinance makes sense depends on its costs, your new rate and how long you plan to keep the loan. Refinancing has a number of benefits that will often make it worth the initial expenditure many times over.
Benefits When you refinance, you could be able to reduce your interest rate and monthly mortgage payment , sometimes considerably. You could also have the ability to "cash out" some of the built-up equity in your residence, which you will be able use to take care of higher interest debt, improve your home, or take a vacation. With lower interest rates, you might also get the chance to build up home equity more quickly by switching to a shorter-term mortgage.
Fees and Expenses All of these benefits do come with some expense, though. You will have the same kinds of fees as you did with your existing home loan. These probably include settlement costs, an appraisal, lender's title insurance, underwriting fees, and others.
When you refinance your present mortgage too soon, you may have a penalty to pay. That depends on the rules of your current mortgage loan. However, some of these penalties apply only to the first several years of the loan. We'll help you sort through the details: contact us at 800-880-8557 .
Doing the Math You might think about paying points to reduce your interest rate. Your savings on the life of the loan could be substantial if you've paid up front about three percent of the new loan balance. We recommend that you talk to a tax professional before acting on rumors that the points paid may be deducted on your federal income taxes.
Another thing about taxes is that if you reduce your interest rate, of course you'll also be reducing the interest amount that you'll be able to deduct on your federal income taxes. This is one more cost that borrowers consider. We can help you do the math!
Most borrowers find that the monthly savings balance out the initial cost of a refinance. We will help you figure out which program is right for you, considering your cash on hand, the likelihood of selling your house in the next few years, and what effect refinancing may have on your taxes. Call us at 800-880-8557 to get you started.
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