Weighing the Options of Refinancing
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Some have said that only if your new interest will be at least two points lower, should you refinance your loan. That could have been accurate years ago, but as refinancing has been costing less recently, it is a good time to think about a new loan! A refinance is often worth its cost many times over, considering the advantages that may come, along with a lower interest rate.
When you refinance, you may be able to reduce your interest rate and monthly mortgage payment amount, perhaps by a lot. You could also have the option to "cash out" some of your home equity, which you may use to take care of higher interest debt, improve your home, or take a vacation. You might be able to refinance into a shorter-term mortgage, giving you the ability to add to your home equity faster.
Expenses and Fees
All these advantages do come with some expense, though. You'll have to pay the same types of expenses and fees as with your existing mortgage loan. These could include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and others.
Do the Math
You might offer to pay discount points (prepaid interest) to get a lower interest rate. When you pay (on average) three percent of the mortgage loan amount at the start, the savings for the life of the new mortgage loan can be substantial. You may be told that the points may be tax deductible, but as tax regulations can be ever-changing, we urge you to consult with a tax professional before making decisions based on this.
Speaking of taxes, if your interest rate is reduced, it follows that you'll also be lowering the paid interest amount that you will be able to deduct from your federal income taxes. This is one more cost that borrowers take into account. We can help you do the math! Call us at 516-431-2009.
Ultimately, for most the amount of up-front costs to refinance are made up soon in savings each month. We will work with you to determine which mortgage program is right for you, considering your cash on hand, the likelihood of selling your home in the near future, and what effect refinancing could have on your taxes. Call us at 516-431-2009 to get you started.