When is Refinancing Worth it?
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Ever hear the pearl of wisdom that says you should only refinance if your new interest rate will be at least two points under your present rate? That may have been true years ago, but with refinancing dropping in cost recently, it is never the wrong time to consider a new mortgage loan! A refinance is often worth its cost many times over, because of the advantages that it brings, in addition to a reduced interest rate.
Benefits from Refinancing
When you refinance, you may be able to reduce the interest rate and monthly payment , sometimes significantly. You may also have the option to "cash out" a portion of your equity, that you may use to take care of higher interest debts, make home improvements, or take a vacation. You could have the option to refinance to a shorter-term mortgage loan, enabling you to build up your equity faster.
All of these benefits do cost something, though. With your refinance, you're paying for a lot of the same things you paid for when you got your existing mortgage loan. Included in your costs can 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 more favorable interest rate. Your savings over the life of the mortgage could be significant if you've paid up front about 3% of the new loan total. You might be told that the points can be tax deductible, but since tax regulations are difficult to keep up with, please consult with your tax professional before considering this in your calculations.
One more cost that borrowers may consider is that a reduced interest rate will lower the interest amount you'll deduct from your federal income taxes. Call us at 808.457.2455 to help you do the math.
Most people find that the monthly savings outweigh the up-front cost of a refinance. We will help you determine which program is ideal for you, taking into account your cash on hand, how likely you are to sell your home in the near future, and how refinancing can effect your taxes. Call us at 808.457.2455 to get you started.
Curious about refinancing? Call us: 808.457.2455.