Weighing the Options of Refinancing

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Ever heard the old rule of thumb that says you should only consider refinancing if your new interest rate will be at least 2 points under your present rate? Maybe that was good advice a number of years ago, but since refinance costs have been getting lower, it could be time to look into it. Refinancing has a number of benefits that can make it worth the initial expenditure a few times over.

Benefits from Refinancing

You may be able to bring down your interest rate (sometimes substantially) and reduce your monthly payment amount with your refinanced loan. You may also have the ability to "cash out" a portion of the built-up equity in your home, which you are able use to consolidate debts, improve your home, or take a vacation. You could be able to refinance into a shorter-term mortgage loan, giving you the ability to add to your equity faster.

Expenses and Fees

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

Do the Math

You might offer to pay points (prepaid interest) to gain a lower rate of interest. When you pay (on average) three percent of the mortgage loan amount at the start, your savings for the life of the new mortgage loan can be significant. We recommend that you talk to a tax professional before acting on rumors that the paid points may be deducted on your federal income taxes.

Speaking of taxes, once your interest rate is reduced, it follows that you'll also be reducing the interest amount that you'll be able to deduct from your taxes. This is another expense that some borrowers take into account. Call us at (207) 571-8034 to help you do the math.

In the end, for most the amount of up-front costs to refinance are paid back soon in savings each month. We will work with you to find out which mortgage program is the right fit for you, considering your cash on hand, the likelihood of selling your home in the next few years, and what effect refinancing could have on your taxes. Call us at (207) 571-8034 to get started.

Want to know more about refinancing your home? Call us: (207) 571-8034.