When is Refinancing Worth it?

Ever heard the old rule of thumb that says you should only consider refinancing if your new interest rate is at least 2 points lower than your existing one? Perhaps several years ago that was good advice, but since refinance costs have been falling recently, it may be a good time to take a serious look. A refinanced loan may be worth its cost many times over, factoring in the benefits that come, along with a reduced interest rate.

Benefits from Refinancing

You may be able to lower your interest rate (sometimes by a lot) and make smaller mortgage payments with your refinanced mortgage. You may also have the ability to "cash out" some of the built-up equity in your residence, which you may use to consolidate debt, add on to your home, or finance a vacation. With reduced interest rates, you might also be able to build your home equity more quickly by changing to a shorter-term loan.

The Cost

All these advantages do cost something, though. With your refinance, you are paying for most of the same things you paid for during your current mortgage loan. Among these will be settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.

You could be required to make a penalty payment for refinancing your present loan too quickly. It depends on the terms of your current mortgage. However, some of these penalties apply just to the initial couple of years of your mortgage loan. We'll help you with the details: contact us at 770-270-9044.

Doing the Math

Paying points can help you attain a lower interest rate. If you pay (on average) three percent of the mortgage loan amount at the start, the savings for the life of the new loan can be great. You may have heard that these points can be deducted on your income taxes, but since tax regulations can be difficult to keep up with, please speak with your tax professional before considering this in your calculations.

An additional cost that borrowers might consider is that a lower rate of interest will reduce the interest amount you'll deduct on your federal income taxes. Call us at 770-270-9044 to help you do the math.

Most borrowers find that the monthly savings quickly outweigh the up-front expenses of refinancing. We'll work with you to determine which loan program is right for you, considering your cash on hand, how likely you are to sell your residence in the next few years, and the effect refinancing may have on your taxes. Call us at 770-270-9044 to get started.