Weighing the Options of Refinancing

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Have you ever heard the pearl of wisdom that states you should only consider refinancing if the new interest rate is at least two points below your present rate? That could have been good advice a while back, but with refinancing dropping in cost in recent years, it is a good time to consider a new mortgage loan! Refinancing has some advantages that often make it worth the up-front expenditure a few times over.

Benefits from Refinancing

You might be able to bring down your interest rate (sometimes significantly) and reduce your mortgage payment amount with a refinanced mortgage loan. You may also have the option to "cash out" some of your home equity, which you may use to consolidate debts, add on to your home, or finance a vacation. With reduced interest rates, you might also get the chance to build your home equity more quickly by switching to a shorter term mortgage loan.

Fees and Expenses

All of these advantages do cost something, though. With your refinance, you are paying for basically the same things you paid for when you obtained your original mortgage. These could include settlement costs, an appraisal, lender's title insurance, underwriting expenses, and so on.

Doing the Math

You could offer to pay discount points (prepaid interest) to attain a lower rate of interest. If you pay (on average) 3% of the loan amount at the start, your savings for the life of the refinanced mortgage loan can be significant. You might be told that points can be tax deductible, but since tax regulations are difficult to keep up with, we urge you to consult with your tax professional before depending on this.

One more expense that a borrower may consider is that a lower interest rate will reduce the interest amount you will deduct from your federal income taxes. Call us at (281) 778-0805 to help you do the math.

Most people find that the savings per month quickly balance out the up-front expenses of a refinance. We'll work with you to find out which mortgage program is best for you, taking into account your cash on hand, the likelihood of selling your house in the next few years, and what effect refinancing will probably have on your taxes. Call us at (281) 778-0805 to get started.

Want to know more about refinancing your home? Give us a call at (281) 778-0805.

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