Weighing the Options of Refinancing

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Ever hear the pearl of wisdom that says you should only consider refinancing if your new interest rate will be at least two points under your existing rate? Maybe several years ago that was good advice, but since refinance costs have been falling recently, it could be a good time to take a serious look. Refinancing has various benefits that will often make it worth the initial expenditure many times over.

Advantages

When you refinance, you may be able to lower your interest rate and monthly mortgage payment amount, sometimes significantly. You might also be able to "cash out" a portion of the built-up equity in your home, which you are able use to consolidate debt, improve your home, or take a vacation. With lower rates, you may also get the chance to build up home equity more quickly by switching to a shorter term loan.

The Cost

As you probably know, you'll have some fees and expenses during your the refinance process. You will have to pay the same sort of expenses and fees as you did with your existing mortgage. Included in your costs will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

Do the Math

You might offer to pay discount points (prepaid interest) to attain a lower interest rate. If you pay (on average) 3% of the mortgage loan amount at the start, your savings for the life of the refinanced loan can be substantial. You may hear that these points can be deducted on your income taxes, but because tax regulations are difficult to keep up with, we urge you to consult with a tax professional before depending on this.

Another cost that borrowers may take into account is that a reduced rate of interest will reduce the interest amount you'll deduct on your taxes. Call us at 916-731-4405 to help you do the math.

In the end, for most people the total of up-front costs to refinance are paid back soon in monthly savings. We can help you figure out what your options are, considering the effect a refinance could have on your taxes, if you are likely to sell your home in the next couple of years, and your available cash. Call us at 916-731-4405 to get you started.

Curious about refinancing? Give us a call at 916-731-4405.

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