When is Refinancing Worth it?

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Have you ever heard the pearl of wisdom that states you should only refinance if the new interest rate is at least 2 points lower than your current one? Perhaps several years ago that was sage advice, but since refinance costs have been getting lower, it may be time to take a serious look. Refinancing has some benefits that will often make it worth the up-front expenditure a few times over.

Advantages

When you refinance, you might have the ability to reduce the interest rate and monthly mortgage payment amount, sometimes considerably. You might also have the ability to "cash out" a portion of the built-up equity in your residence, which you can use to consolidate debt, add on to your home, or finance a vacation. You could have the option to refinance to a shorter-term mortgage program, enabling you to build up your home equity faster.

Expenses and Fees

All of these advantages do come with some expense, though. You will have the same types of fees as with your existing home loan. Included in the list might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Do the Math

You might need to pay points (prepaid interest) to get a better interest rate. If you pay (on average) 3% of the mortgage loan amount at the start, your savings for the term of the new mortgage loan can be significant. We recommend that you consult with a tax professional before acting on advice that the points paid may be deducted on your federal income taxes.

An additional expense that a borrower might consider is that a lower interest rate will reduce the interest amount you will be able to deduct on your federal income taxes. Call us at 504-866-5626 to help you do the math.

Most people find that the savings each month quickly outweigh the up-front cost of refinancing. We will help you figure out which program is ideal for you, looking at your cash on hand, the likelihood of selling your home in the next few years, and how refinancing might effect your taxes. Call us at 504-866-5626 to get started.

Curious about refinancing your home? Call us at 504-866-5626.

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