Weighing the Options of Refinancing
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Some have said that only when your new interest will be at least 2 points lower, should you refinance your mortgage. Maybe that was good advice several years ago, but as refinance costs have been falling recently, it could be a good time to take a serious look. A refinance may be worth its cost several times over, factoring in the benefits that it brings, as well as a lower interest rate.
Benefits from Refinancing
When you refinance, you may have the ability to reduce the interest rate and mortgage payment , sometimes significantly. You may also be able to "cash out" a portion of your equity, which you can use to consolidate debts, make home improvements, or finance a vacation. With reduced rates, you might also get the chance to build your home equity faster by changing to a shorter term loan.
All these advantages do come with some expense, though. With your refinance, you're paying for many of the same things you paid for during your original mortgage. Included in the list will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.
Doing the Math
Paying points can get you a better interest rate. When you pay (on average) three percent of the loan amount initially, your savings for the life of the new mortgage loan can be great. Please consult with a tax professional before acting on hear-say that the paid points can be deducted on your taxes.
An additional expense that a borrower might take into account is that a lower interest rate will lower the interest amount you'll be able to deduct on your federal income taxes. We can help you do the math! Call us at 507-847-4466.
All things considered, for most borrowers the amount of up-front costs to refinance will be paid back soon in savings each month. We will work with you to find out what mortgage program is ideal for you, considering your cash on hand, the likelihood of selling your home in the near future, and the effect refinancing will have on your taxes. Call us at 507-847-4466 to get you started.