When is Refinancing Worth it?

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Have you ever heard the pearl of wisdom that says you should only refinance if your new interest rate is at least two points below your existing one? Maybe that was sound advice several years ago, but since refinance costs have been getting lower, it may be a good time to take a serious look. Refinancing your mortgage has a number of benefits that often make it worth the initial cost several times over.

Advantages

When you refinance, you might be able to lower the interest rate and monthly mortgage payment , perhaps considerably. You also may have the option of pulling out some of the equity in your house by "cashing out" some funds to renovate your home, consolidate debt, or plan a special vacation. With reduced interest rates, you may also be able to build up home equity more quickly by changing to a shorter-term mortgage loan.

The Cost

All of these benefits do cost something, though. When you refinance, you are paying for most of the same things you were charged for during your existing mortgage loan. Included in the list might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Doing the Math

You could need to pay points (prepaid interest) to attain a more favorable interest rate. If you pay (on average) 3% of the loan amount initially, the savings for the term of the new mortgage can be great. Please talk to a tax professional before acting on hear-say that the paid points may be deducted on your federal income taxes.

An additional expense that borrowers might take into account is that a reduced interest rate will reduce the interest amount you will deduct from your 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 expenses of refinancing. We can help you explore your options, considering the effect a refinance may have on your taxes, if you are likely to sell your home in the next couple of years, and your money on hand. Call us at 504-866-5626 to get you started.

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

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