When is Refinancing Worth it?

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Have you ever heard the pearl of wisdom that says you should only refinance if your new interest rate will be at least two points under your present one? That might have been sound advice a while back, but with refinancing dropping in cost recently, it's a good time to consider a new loan! A refinanced loan can be worth its cost many times over, factoring in the advantages that it brings, along with a reduced interest rate.

Advantages of Refinancing

When you refinance, you may be able to reduce your interest rate and monthly mortgage payment , perhaps by a lot. You may also have the ability to "cash out" a portion of your equity, which you are able use to consolidate debts, add on to your home, or finance a vacation. With lower interest rates, you might also be able to build up home equity faster by switching to a shorter-term loan.

The Cost

All these advantages do cost something, though. You will be charged the same types of fees as with your current home loan. Included in the list can be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Do the Math

You could offer to pay points (prepaid interest) to gain a better rate of interest. If you pay (on average) three percent of the mortgage loan amount initially, your savings for the life of the refinanced loan can be substantial. You might hear that these points may be tax deductible, but since tax regulations are difficult to keep up with, please consult your tax professional before making any decisions based on this.

One more expense that borrowers might consider is that a lower rate of interest will lower the interest amount you'll deduct from your federal income taxes. We can help you do the math! Call us at 516-431-2009.

Ultimately, for most borrowers the amount of initial costs to refinance will be made up soon in monthly savings. We'll help you figure out which program is ideal for you, considering your cash on hand, how likely you are to sell your residence in the next few years, and how refinancing will effect your taxes. Call us at 516-431-2009 to get started.

Want to know more about refinancing your home? Give us a call at 516-431-2009.

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