Is Refinancing Worth the Cost?

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Have you ever heard the pearl of wisdom that says you should only refinance if the new interest rate is at least 2 points lower than your current rate? That may have been sound advice a while back, but since refinancing has been costing less over the last few years, it is a good time to consider a new mortgage loan! Refinancing your loan has a variety of advantages that will often make it worth the up-front cost several times over.

Advantages

When you refinance, you might be able to lower the interest rate and mortgage payment , sometimes considerably. Additionally, you may have the option of tapping into your home equity by "cashing out" some funds to remodel your home, consolidate debt, or plan a special vacation. You might have the option to refinance to a shorter-term mortgage loan, giving you the ability to add to your equity faster.

Fees and Expenses

As you probably expect, you will have some fees and expenses during the process of refinancing. With your refinance, you're paying for many of the same things you paid for when you obtained your original mortgage. Among these can be settlement costs, appraisal fees, lender's title insurance, underwriting fees, and so on.

Do the Math

You might need to pay discount points (prepaid interest) to attain a lower rate of interest. If you pay (on average) 3% of the mortgage loan amount initially, your savings for the term of the new mortgage loan can be significant. You might be told that these points can be tax deductible, but as tax regulations can be ever-changing, please consult a tax professional before considering this in your calculations.

One more expense that a borrower may take into account is that a lower interest rate will lower the interest amount you will be able to deduct on your federal income taxes. Call us at 310-379-5997 to help you do the math.

In the end, for most the amount of up-front costs to refinance are paid back soon in monthly savings. We'll work with you to find out what mortgage loan program is the ideal fit for you, taking into account your cash on hand, how likely you are to sell your house in the next few years, and what effect refinancing will probably have on your taxes. Call us at 310-379-5997 to get started.

Want to know more about refinancing? Call us: 310-379-5997.

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