When is Refinancing Worth it?
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Ever hear the old rule of thumb that says you should only refinance if your new interest rate is at least 2 points lower than your present one? That may have been accurate years ago, but with the fact that refinancing has been costing less in recent years, it's never the wrong time to think about a new loan! Refinancing has some advantages that can make it worth the up-front expenditure a few times over.
Benefits from Refinancing
You may be able to lower your interest rate (sometimes substantially) and reduce your mortgage payment amount with a refinanced mortgage loan. You might also have the ability to "cash out" a portion of your equity, that you can use to take care of higher interest debts, add on to your home, or finance a vacation. With lower rates, you might also be able to build your home equity faster by changing to a shorter term loan.
Fees and Expenses
As you probably expect, you will have to pay for the the refinance process. When you refinance, you are paying for most of the same things you paid for when you got your original mortgage. Among these will be settlement costs, an appraisal, lender's title insurance, underwriting fees, and others.
Doing the Math
You could offer to pay points (prepaid interest) to get a more favorable interest rate. If you pay (on average) three percent of the loan amount at the start, your savings for the term of the refinanced loan can be significant. You might be told that points may be deducted on your income taxes, but as tax regulations are ever-changing, we urge you to consult a tax professional before depending on this.
Another thing about taxes is that if your interest rate is lowered, it follows that you'll also be reducing the interest amount that you may deduct from your taxes. This is another cost that borrowers take into account. We can help you do the math! Call us at 310-379-5997.
Ultimately, for most borrowers the amount of initial costs to refinance will be made up very quickly in monthly savings. We can help you figure out what your options are, considering the effect a refinance may have on your taxes, whether you are likely to sell your home in the near future, and your available cash. Call us at 310-379-5997 to get started.
Curious about refinancing? Give us a call at 310-379-5997.
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