Weighing the Options of Refinancing
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Have you ever heard the old rule of thumb that says you should only refinance if your new interest rate will be at least 2 points under your current rate? Perhaps several years ago that was sage advice, but since refinance costs have been falling recently, it may be time to take a serious look. A refinance is often worth its cost many times over, factoring in the advantages that it brings, in addition to a reduced interest rate.
When you refinance, you might have the ability to reduce your interest rate and monthly payment , perhaps by a lot. Additionally, you might be given the option of pulling out some of your home equity by "cashing out" a sum of money to fix up your home, consolidate debt, or plan a special vacation. With lower interest rates, you might also get the chance to build your home equity faster by switching to a shorter term loan.
Fees and Expenses
All these advantages do cost something, though. You will pay the same kinds of expenses and fees as you did with your present mortgage. Included in your costs will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.
Doing the Math
Paying points can result in a better interest rate. When you pay (on average) three percent of the loan amount initially, the savings for the term of the new mortgage can be significant. We recommend that you talk to a tax professional before acting on hear-say that the points paid can be deducted on your federal income taxes.
One more expense that borrowers may consider is that a lower rate of interest will lower the interest amount you'll be able to deduct on your federal income taxes. Call us at (512) 422-9036 to help you do the math.
All things considered, for most people the total of up-front costs to refinance are made up very quickly in monthly savings. We'll work with you to determine what mortgage program is the right fit for you, considering your cash on hand, how likely you are to sell your house in the near future, and what effect refinancing might have on your taxes. Call us at (512) 422-9036 to get started.
Curious about refinancing? Call us at (512) 422-9036.
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