When is Refinancing Worth it?

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Ever hear the old rule of thumb that says you should only consider refinancing if the new interest rate will be at least 2 points under your existing one? Perhaps several years ago that was sage advice, but since refinance costs have been falling recently, it may be time to take a serious look. A refinance is often worth its cost several times over, considering the benefits that may come, as well as a lower interest rate.

Benefits

You may be able to bring down your interest rate (sometimes by a lot) and have smaller monthly payments with a refinanced mortgage. You may also have the ability to "cash out" a portion of the built-up equity in your residence, that you are able use to take care of higher interest debt, add on to your home, or finance a vacation. You might have the option to refinance to a shorter-term mortgage loan, giving you the ability to build up your home equity quicker.

The Cost

As you probably know, you'll have to pay for your process of refinancing. When you refinance, you're paying for basically the same things you paid for during your existing mortgage loan. Among these might be settlement costs, an appraisal, lender's title insurance, underwriting expenses, and others.

Doing the Math

You might investigate paying points to receive a reduced interest rate. If you pay (on average) 3% of the loan amount at the start, your savings for the life of the new loan can be substantial. We recommend that you talk to a tax professional before acting on hear-say that any paid points can be deducted on your taxes.

Another expense that a borrower might take into account is that a lower rate of interest will reduce the interest amount you will be able to deduct from your federal income taxes. Call us at (512) 291-6100 to help you do the math.

All things considered, for most the total of up-front costs to refinance will be paid back very quickly in savings each month. We can help you explore your options, 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 (512) 291-6100 to get you started.

Curious about refinancing your home? Give us a call at (512) 291-6100.

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