Weighing the Options of Refinancing

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Ever hear the old rule of thumb that states you should only refinance if the new interest rate will be at least 2 points under your present rate? That could have been valid a while back, but since refinancing has been costing less in recent years, it is a good time to consider a new loan! Refinancing your mortgage loan has some benefits that often make it worth the initial cost several times over.

Benefits from Refinancing

When you refinance, you may have the ability to reduce the interest rate and monthly payment amount, perhaps significantly. You could also be able to "cash out" a portion of the built-up equity in your home, which you will be able use to consolidate debt, improve your home, or plan a vacation. With reduced interest rates, you might also be able to build up home equity faster by switching to a shorter-term loan.

Fees and Expenses

Of course, you will have to pay for your the refinance process. You will have to pay the same sort of expenses and fees as you did with your present mortgage loan. Included in your costs may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Doing the Math

You could offer to pay discount points (prepaid interest) to get a lower interest rate. If you pay (on average) 3% of the loan amount initially, the savings for the term of the new mortgage loan can be great. You might have heard that points can be tax deductible, but since tax regulations can be difficult to keep up with, we urge you to consult with a tax professional before making any decisions based on this.

Speaking of taxes, if your interest rate is reduced, naturally you will also be lowering the interest amount that you'll be able to deduct from your taxes. This is one more expense that some borrowers consider. Call us at 701.222.0100 to help you do the math.

All things considered, for most people the amount of up-front costs to refinance are made up very quickly in savings each month. We can help you explore your options, considering the effect a refinance could have on your taxes, whether you are likely to sell your home in the next couple of years, and your money on hand. Call us at 701.222.0100 to get started.

Want to know more about refinancing your home? Call us at 701.222.0100.

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