Is Refinancing Worth the Cost?

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Have you ever heard the old rule of thumb that says you should only refinance if the new interest rate is at least 2 points under your existing one? Maybe that was sound advice several years ago, but as refinance costs have been getting lower, it could be a good time to take a serious look. Refinancing your mortgage loan has some benefits that can make it worth the initial expenditure several times over.

Benefits

When you refinance, you may be able to reduce your interest rate and monthly mortgage payment amount, sometimes significantly. You could also have the option to "cash out" some of your home equity, which you may use to take care of higher interest debt, add on to your home, or take a vacation. With reduced rates, you may also be able to build your home equity faster by moving to a shorter-term mortgage.

The Cost

All these benefits do come with some expense, though. With your refinance, you're paying for most of the same things you were charged for when you obtained your existing mortgage. Among these may be settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.

Do the Math

You might offer to pay discount points (prepaid interest) to attain a lower interest rate. Your savings over the life of the mortgage loan might be significant if you've paid up front about three percent of the new loan balance. We recommend that you consult with a tax professional before acting on advice that any paid points may be deducted on your taxes.

One more cost that borrowers might take into account is that a reduced rate of interest will reduce the interest amount you will be able to deduct on your federal income taxes. We can help you do the math! Call us at (509) 892-9014.

All things considered, for most borrowers the total of up-front costs to refinance will be made up very quickly in monthly savings. We will help you find out which program is perfect for you, considering your cash on hand, how likely you are to sell your residence in the next few years, and how refinancing may effect your taxes. Call us at (509) 892-9014 to get you started.

Want to know more about refinancing? Give us a call: (509) 892-9014.