When is Refinancing Worth it?
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It has been said that only if your new interest will be at least two points lower, should you refinance your loan. That could have been true a while back, but with refinancing dropping in cost over the last few years, it's a good time to consider a new mortgage! Refinancing your mortgage loan has a variety of advantages that can make it worth the initial cost several times over.
Advantages of Refinancing
When you refinance, you may have the ability to reduce the interest rate and monthly mortgage payment amount, sometimes significantly. Additionally, you may be given the option of tapping into the equity in your property by "cashing out" some money to renovate your home, consolidate debt, or take your family on a vacation. You might have the option to refinance to a shorter-term mortgage program, giving you the ability to add to your equity quicker.
All these advantages do come with some expense, though. You'll pay the same sort of expenses and fees as with your current mortgage loan. Included in your costs will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
You could need to pay points (prepaid interest) to gain a more favorable interest rate. When you pay (on average) 3% of the loan amount initially, your savings for the term of the new mortgage can be substantial. You might have heard that these points can be tax deductible, but as tax regulations are ever-changing, please consult with your tax professional before making decisions based on this.
Another thing about taxes is that once your interest rate is lowered, it follows that you'll also be reducing the interest amount that you'll be able to deduct from your taxes. This is another cost that borrowers consider. Call us at (608) 372-9222 to help you do the math.
Most people find that the monthly savings quickly outweigh the initial cost of a refinance. We will help you determine what mortgage loan program is best for you, looking at your cash on hand, the likelihood of selling your residence in the next few years, and the effect refinancing will probably have on your taxes. Call us at (608) 372-9222 to get started.
Want to know more about refinancing your home? Give us a call at (608) 372-9222.