When is Refinancing Worth it?

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Ever hear the pearl of wisdom that says you should only refinance if the new interest rate will be at least 2 points lower than your existing rate? Maybe several years ago that was sage advice, but as refinance costs have been getting lower, it may be a good time to take a serious look. A refinance may be worth its cost several times over, factoring in the advantages that may come, in addition to a reduced interest rate.

Advantages

You may be able to bring down your interest rate (sometimes significantly) and have smaller monthly payments with your refinanced mortgage. You might also have the option to "cash out" a portion of your home equity, that you are able use to take care of higher interest debts, add on to your home, or finance a vacation. With lower rates, you might also be able to build your home equity more quickly by moving to a shorter term mortgage loan.

Fees and Expenses

All these benefits do come with some expense, though. With your refinance, you're paying for many of the same things you were charged for during your existing mortgage. Included in the list might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

Do the Math

You might think about paying points to get a better interest rate. Your savings on the life of the mortgage may be significant if you've paid up front about 3% of the new loan total. You might hear that these points may be deducted on your income taxes, but since tax regulations can be ever-changing, we urge you to consult a tax professional before considering this in your calculations.

Another thing about taxes is that if your interest rate is reduced, it follows that you'll also be lowering the interest amount that you'll be able to deduct on your federal income taxes. This is one more expense that some borrowers take into consideration. We can help you do the math! Call us at 701.222.0100.

Most borrowers find that the savings each month quickly balance out the initial cost of refinancing. We'll work with you to figure out what loan program is right for you, looking at your cash on hand, the likelihood of selling your house in the next few years, and the effect refinancing may have on your taxes. Call us at 701.222.0100 to get you started.

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

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