Is Refinancing Worth the Cost?

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It has been said that only when your new interest is at least two points below your current rate, should you refinance your mortgage. Perhaps that was good advice several years ago, but as refinance costs have been getting lower, it may be time to look into it. A refinanced mortgage can be worth its cost many times over, factoring in the advantages that it brings, in addition to a lower interest rate.

Advantages

You might be able to bring down your interest rate (sometimes by a lot) and reduce your mortgage payment amount with a refinanced mortgage. You might also have the ability to "cash out" a portion of your home equity, which you can use to consolidate debt, improve your home, or finance a vacation. With lower interest rates, you might also get the chance to build up home equity more quickly by switching to a shorter-term mortgage loan.

Fees and Expenses

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

Do the Math

You could need to pay points (prepaid interest) to attain a better interest rate. The amount you'll save over the life of the mortgage might be significant if you've paid up front about three percent of the new loan balance. You might be told that the points can be deducted on your income taxes, but as tax regulations can be difficult to keep up with, please consult a tax professional before considering this in your calculations.

One more cost that a borrower might take into account is that a lower interest rate will reduce the interest amount you'll be able to deduct from your federal income taxes. We can help you do the math! Call us at (773) 774-9040 Ext 121.

In the end, for most people the amount of up-front costs to refinance are paid back very quickly in monthly savings. We can help you find out what your options are, considering the effect a refinance may have on your taxes, how likely you may be to sell in the next couple of years, and your cash on hand. Call us at (773) 774-9040 Ext 121 to get you started.

Want to know more about refinancing your home? Call us at (773) 774-9040 Ext 121.

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