Is Refinancing Worth the Cost?

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Ever hear the pearl of wisdom that says you should only refinance if your new interest rate will be at least two points under your existing rate? Perhaps that was good advice a number of years ago, but since refinance costs have been falling recently, it could be a good time to take a serious look. Refinancing has various benefits that will often make it worth the initial expenditure many times over.

Advantages

You might be able to lower your interest rate (sometimes substantially) and reduce your mortgage payment amount with your refinanced mortgage loan. You might also have the option to "cash out" a portion of the built-up equity in your home, that you are able use to consolidate debts, make home improvements, or plan a vacation. With reduced rates, you might also be able to build up home equity faster by switching to a shorter term mortgage loan.

The Cost

As you probably expect, you'll have some fees and expenses during your process of refinancing. With your refinance, you're paying for a lot of the same things you were charged for when you got your current mortgage. These can include settlement costs, appraisal fees, 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) 3% of the loan amount initially, the savings for the term of the refinanced mortgage can be great. You may be told that these points may be deducted on your income taxes, but since tax regulations can be ever-changing, please consult a tax professional before considering this in your calculations.

An additional cost that borrowers might consider is that a reduced interest rate will reduce the interest amount you will be able to deduct from your taxes. Call us at (512) 291-6100 to help you do the math.

Most borrowers find that the savings each month quickly balance out the initial cost of a refinance. We can help you figure out what your options are, considering the effect a refinance might have on your taxes, whether 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 started.

Want to know more about refinancing your home? Call us at (512) 291-6100.

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