When is Refinancing Worth it?

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Ever heard the old rule of thumb that says you should only consider refinancing if the new interest rate is at least two points under your existing one? Maybe several years ago that was good advice, but since refinance costs have been getting lower, it may be time to take a serious look. Refinancing your mortgage has a number of advantages that will often make it worth the up-front expenditure several times over.

Advantages

You may be able to bring down your interest rate (sometimes substantially) and reduce your mortgage payment amount with your refinanced mortgage. Additionally, you might be given the option of pulling out some of your home equity by "cashing out" some money to renovate your home, consolidate debt, or plan a special vacation. With lower rates, you might also be able to build up home equity more quickly by moving to a shorter-term loan.

Fees and Expenses

All these benefits do come with some expense, though. You'll pay the same sort of expenses and fees as with your current mortgage loan. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Doing the Math

You might offer to pay points (prepaid interest) to get a more favorable rate of interest. The money you'll save on the life of the loan might be substantial if you've paid up front about three percent of the new loan balance. We recommend that you consult with a tax professional before acting on hear-say that any paid points may be deducted on your federal income taxes.

Another thing about taxes is that once your interest rate is reduced, of course you'll also be reducing the interest amount that you'll be able to deduct on your taxes. This is one more cost that borrowers consider. Call us at (256) 543-9211 to help you do the math.

Most people find that the savings each month quickly balance out the up-front expenses of refinancing. We can help you find out what your options are, considering the effect a refinance might have on your taxes, how likely you may be to sell in the next couple of years, and your available cash. Call us at (256) 543-9211 to get started.

Curious about refinancing? Call us at (256) 543-9211.

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