When is Refinancing Worth it?
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Have you ever heard the old rule of thumb that says you should only refinance if your new interest rate is at least 2 points lower than your existing one? Perhaps several years ago that was wise advice, but since refinance costs have been getting lower, it could be time to look into it. A refinance is often worth its cost several times over, considering the advantages that it brings, along with a lower interest rate.
Advantages of Refinancing
You might be able to bring down your interest rate (sometimes by a lot) and reduce your mortgage payment amount with your refinanced loan. You could also have the ability to "cash out" a portion of the built-up equity in your residence, which you are able use to take care of higher interest debts, improve your home, or finance a vacation. You might have the option to refinance into a shorter-term mortgage program, enabling you to build up your equity quicker.
Fees and Expenses
All these advantages do come with some expense, though. With your refinance, you're paying for basically the same things you paid for at the time you got your original mortgage loan. Included in your costs can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
You might need to pay discount points (prepaid interest) to get a lower interest rate. When you pay (on average) 3% of the mortgage loan amount initially, the savings for the term of the new mortgage can be significant. Please consult with a tax professional before acting on advice that the points paid can be deducted on your taxes.
Another cost that a borrower might consider is that a lower interest rate will lower the interest amount you'll deduct from your taxes. Call us at (904) 342-3622 to help you do the math.
All things considered, for most the amount of initial costs to refinance are paid back soon in savings each month. We can help you explore what your options are, considering the effect a refinance may have on your taxes, if you are likely to sell your home in the near future, and your cash on hand. Call us at (904) 342-3622 to get started.
Want to know more about refinancing? Give us a call at (904) 342-3622.