When is Refinancing Worth it?

 

Ever heard the pearl of wisdom that states you should only refinance if your new interest rate is at least two points lower than your current one? That may have been valid years ago, but with refinancing dropping in cost over the last few years, it's a good time to explore the options of a new mortgage! Refinancing has some benefits that can make it worth the up-front cost a few times over.

Advantages

When you refinance, you could have the ability to reduce your interest rate and mortgage payment. You also might have the option of tapping into the equity in your property by "cashing out" some funds to fix up your home, consolidate debt, or plan a special vacation. You could have the option to refinance into a shorter-term mortgage loan, giving you the ability to add to your home equity quicker.

Fees and Expenses

All of these advantages do come with some expense, though. With your refinance, you are paying for a lot of the same things you were charged for during your current mortgage. Among these can be settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.

Doing the Math

Paying points can result in a better interest rate. The money you'll save over the life of the mortgage loan may be substantial if you've paid up front about three percent of the new loan total. We recommend that you talk to a tax professional before acting on hear-say that the points paid may be deducted on your taxes.

An additional expense that a borrower may consider is that a reduced interest rate will lower the interest amount you'll deduct on your taxes.

All things considered, for most people the total initial costs to refinance are made up soon in savings each month. We can help you explore your options, considering the effect a refinance might have on your taxes, whether you are likely to sell your home in the near future, and your available cash.

There are a lot of factors to consider when determining if refinancing is right for you. Fortunately, we have an interactive refinancing calculator to help. This calculator not only helps calculate your monthly payment and net interest savings but will also calculate how many months it will take to break even on closing cost. Check out the Mortgage Refinancing Calculator.