When is Refinancing Worth it?

Ever heard the pearl of wisdom that says you should only refinance if your new interest rate will be at least two points lower than your existing rate? That might have been sound advice years ago, but as refinancing has been costing less in recent years, it is a good time to think about a new mortgage loan! Refinancing has various advantages that often make it worth the up-front cost a few times over.

Benefits

You might be able to lower your interest rate (sometimes by a lot) and reduce your monthly payment amount with your refinanced mortgage. Additionally, you might be given the option of pulling out some of your home equity by "cashing out" some funds to renovate your home, consolidate debt, or take your family on a vacation. You may have the option to refinance to a shorter-term mortgage, giving you the ability to add to your home equity quicker.

The Cost

Of course, you will have some fees and expenses during your process of refinancing. You will be charged the same kinds of expenses and fees as with your existing home loan. These might include settlement costs, appraisal fees, lender's title insurance, underwriting fees, and so on.

When you refinance your present loan too quickly, you might have a penalty to pay. It all depends on your present mortgage loan agreement. These penalties sometimes apply only for the first couple of years. We'll help you sort through the details: contact us at 812-989-9358.

Doing the Math

Paying discount points can result in a lower interest rate. The amount you will save on the life of the mortgage loan could be substantial if you have paid up front about three percent of the new loan total. You may have heard that the points can be tax deductible, but because tax regulations can be ever-changing, please consult with your tax professional before making decisions based on this.

Speaking of taxes, once you lower your interest rate, naturally you'll also be lowering the paid interest amount that you'll be able to deduct on your taxes. This is another expense that borrowers consider. Call us at 812-989-9358 to help you do the math.

Ultimately, for most borrowers the amount of up-front costs to refinance will be paid back soon in monthly savings. We can help you explore your options, considering the effect a refinance could have on your taxes, if you are likely to sell your home in the next couple of years, and your available cash. Call us at 812-989-9358 to get you started.