When is Refinancing Worth it?

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Ever hear the old rule of thumb that says you should only refinance if the new interest rate is at least two points below your current one? That may have been valid a while back, but with refinancing dropping in cost in recent years, it's a good time to explore the options of a new mortgage loan! Refinancing your mortgage loan has some benefits that can make it worth the initial cost a few times over.

Benefits

When you refinance, you might have the ability to lower the interest rate and monthly mortgage payment , sometimes by a lot. You may also have the option to "cash out" some of your home equity, that you can use to consolidate debts, add on to your home, or finance a vacation. With lower rates, you might also get the chance to build your home equity faster by switching to a shorter term mortgage loan.

Expenses and Fees

All of these benefits do come with some expense, though. You will have the same kinds of expenses and fees as you did with your existing mortgage. These may include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.

Doing the Math

You might need to pay points (prepaid interest) to gain a more favorable interest rate. The amount you'll save on the life of the loan may be substantial if you have paid up front about three percent of the new loan balance. You might be told that points can be deducted on your income taxes, but because tax regulations can be ever-changing, please consult with your tax professional before depending on this.

An additional cost that borrowers may consider is that a lower interest rate will lower the interest amount you'll be able to deduct from your taxes. Call us at (718) 639-9500 to help you do the math.

Most people find that the monthly savings balance out the initial expenses of refinancing. We can help you explore what your options are, considering the effect a refinance could have on your taxes, whether you are likely to sell your home in the next couple of years, and your available cash. Call us at (718) 639-9500 to get you started.

Curious about refinancing your home? Give us a call: (718) 639-9500.

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