When is Refinancing Worth it?

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Some have said that only in the case your new interest is at least two points lower, should you refinance your loan. Perhaps several years ago that was good advice, but as refinance costs have been getting lower, it may be time to take a serious look. A refinanced mortgage loan may be worth its cost several times over, factoring in the advantages that it brings, as well as a lower interest rate.

Advantages

When you refinance, you might have the ability to lower the interest rate and monthly mortgage payment amount, perhaps considerably. You also might have the option of tapping into your home equity by "cashing out" a sum of money to remodel your home, consolidate debt, or take your family on a vacation. You might be able to refinance to a shorter-term mortgage program, enabling you to build up your home equity faster.

Fees and Expenses

All these benefits do come with some expense, though. When you refinance, you're paying for basically the same things you paid for when you obtained your existing mortgage loan. These can include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and so on.

Doing the Math

You might look into paying points to receive a reduced interest rate. The amount you will save on the life of the loan could be significant if you've paid up front about 3% of the new loan total. We recommend that you consult a tax professional before acting on rumors that any paid points can be deducted on your taxes.

An additional cost that borrowers may consider is that a lower interest rate will reduce the interest amount you'll deduct on your federal income taxes. Call us at (512) 291-6100 to help you do the math.

Most borrowers find that the savings per month outweigh the initial cost of a refinance. We can help you explore your options, considering the effect a refinance might have on your taxes, if you are likely to sell your home in the next couple of years, and your money on hand. Call us at (512) 291-6100 to get you started.

Curious about refinancing your home? Call us at (512) 291-6100.

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