Is Refinancing Worth the Cost?

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Ever hear the old rule of thumb that says you should only refinance if your new interest rate will be at least two points lower than your current one? Maybe that was good advice a number of years ago, but since refinance costs have been getting lower, it could be time to look into it. Refinancing has some benefits that will often make it worth the up-front cost a few times over.

Benefits

You may be able to lower your interest rate (sometimes by a lot) and reduce your monthly mortgage payment amount with your refinanced mortgage. You also could have the option of pulling out some of your home equity by "cashing out" some funds to remodel your home, consolidate debt, or take your family on a vacation. With reduced rates, you may also be able to build your home equity faster by moving to a shorter term loan.

The Cost

All these advantages do come with some expense, though. When you refinance, you're paying for a lot of the same things you paid for when you obtained your original mortgage. These might include settlement costs, appraisal fees, lender's title insurance, underwriting fees, and others.

Do the Math

You could offer to pay points (prepaid interest) to gain a better interest rate. If you pay (on average) 3% of the mortgage loan amount at the start, your savings for the term of the refinanced mortgage loan can be significant. You may be told that these points may be deducted on your income taxes, but as tax regulations are difficult to keep up with, we urge you to consult your tax professional before making any decisions based on this.

One more expense that a borrower may take into account is that a lower interest rate will reduce the interest amount you'll be able to deduct from your taxes. Call us at (512) 422-9036 to help you do the math.

All things considered, for most the amount of initial costs to refinance will be paid back soon in savings each month. We'll help you determine which mortgage loan program is the best fit for you, looking at your cash on hand, the likelihood of selling your residence in the near future, and the effect refinancing will have on your taxes. Call us at (512) 422-9036 to get you started.

Curious about refinancing? Call us: (512) 422-9036.

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