Is Refinancing Worth the Cost?
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It has been said that only when your new interest will be at least 2 points below your current rate, should you refinance your loan. Perhaps several years ago that was good advice, but since refinance costs have been falling recently, it may be a good time to look into it. Refinancing your mortgage loan has some benefits that often make it worth the up-front cost several times over.
You could be able to lower your interest rate (sometimes substantially) and have smaller mortgage payments with a refinanced mortgage. Additionally, you might have the option of tapping into your home equity by "cashing out" some money to renovate your home, consolidate debt, or plan a special vacation. With reduced rates, you might also be able to build up home equity more quickly by switching to a shorter-term loan.
Fees and Expenses
All of these benefits do cost something, though. You'll be charged the same kinds of expenses and fees as with your existing mortgage loan. Included in your costs might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Do the Math
You might look into paying points to be given a lower interest rate. The amount you will save over the life of the mortgage loan could be significant if you have paid up front about three percent of the new loan total. We recommend that you talk to a tax professional before acting on rumors that the paid points may be deducted on your federal income taxes.
Speaking of taxes, when your interest rate is lowered, of course you will also be lowering the paid interest amount that you'll be able to deduct from your taxes. This is another cost that some borrowers consider. Call us at 701.222.0100 to help you do the math.
Most people find that the monthly savings outweigh the initial expenses of a refinance. We can help you explore what your options are, considering the effect a refinance might have on your taxes, if you are likely to sell your home in the near future, and your money on hand. Call us at 701.222.0100 to get you started.
Curious about refinancing? Give us a call at 701.222.0100.