Some have said that only when your new interest is at least two points under your current rate, should you refinance your loan. Perhaps several years ago that was wise advice, but as refinance costs have been getting lower, it could be a good time to look into it. Refinancing has a variety of advantages that often make it worth the up-front cost many times over.
Benefits
You might be able to lower your interest rate (sometimes significantly) and reduce your monthly payment amount with a refinanced mortgage loan. You might also be able to “cash out” some of your home equity, which you will be able use to consolidate debts, make home improvements, or take a vacation. With reduced 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 benefits do cost something, though. You’ll have the same kinds of fees as you did with your present mortgage. Among these can be settlement costs, an appraisal, lender’s title insurance, underwriting expenses, and so on.
Do the Math
Paying points can result in a lower interest rate. If you pay (on average) 3% of the loan amount initially, the savings for the term of the refinanced mortgage loan can be significant. You may be told that points may be deducted on your income taxes, but because tax regulations are ever-changing, we urge you to consult a tax professional before making any decisions based on this.
Another thing about taxes is that if you lower your interest rate, it follows that you will also be lowering the paid interest amount that you may deduct from your taxes. This is one more expense that borrowers take into account. Call us at (732) 664-9624 to help you do the math.
Most borrowers find that the savings per month quickly balance out the up-front expenses of refinancing. We can help you explore 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 available cash. Call us at (732) 664-9624 to get you started.