Weighing the Options of Refinancing

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Have you ever heard the pearl of wisdom that says you should only consider refinancing if the new interest rate is at least 2 points under your existing rate? Maybe several years ago that was wise advice, but since refinance costs have been falling recently, it may be time to look into it. A refinance is often worth its cost several times over, considering the advantages that come, in addition to a lower interest rate.

Advantages

You might be able to lower your interest rate (sometimes significantly) and make smaller monthly payments with your refinanced mortgage loan. Additionally, you may have the option of tapping into the equity in your property by "cashing out" some funds to renovate your home, consolidate debt, or take your family on a vacation. With lower interest rates, you may also be able to build up home equity faster by moving to a shorter-term mortgage loan.

Expenses and Fees

Of course, you'll have to pay for your the refinance process. You'll pay the same kinds of fees as you did with your present home loan. These might 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 gain a lower interest rate. If you pay (on average) 3% of the loan amount up front, the savings for the life of the new mortgage can be great. Please talk to a tax professional before acting on rumors that these points paid can be deducted on your federal income taxes.

One more cost that a borrower might consider is that a reduced rate of interest will lower the interest amount you'll be able to deduct on your federal income taxes. Call us at 719-357-6601 to help you do the math.

All things considered, for most people the amount of up-front costs to refinance will be paid back soon in monthly savings. We will work with you to determine what mortgage loan program is perfect for you, looking at your cash on hand, how likely you are to sell your house in the next few years, and how refinancing could effect your taxes. Call us at 719-357-6601 to get you started.

Want to know more about refinancing your home? Give us a call at 719-357-6601.

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