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 two points under your existing one? That might have been true years ago, but with refinancing dropping in cost in recent years, it's a good time to think about a new mortgage loan! A refinanced mortgage is often worth its cost many times over, considering the benefits that it brings, in addition to a lower interest rate.
Benefits from Refinancing
You may be able to bring down your interest rate (sometimes significantly) and make smaller mortgage payments with a refinanced loan. You might also have the ability to "cash out" a portion of the built-up equity in your home, which you are able use to take care of higher interest debt, add on to your home, or finance a vacation. You may have the option to refinance to a shorter-term mortgage loan, giving you the ability to build up your home equity faster.
Expenses and Fees
All of these advantages do come with some expense, though. When you refinance, you're paying for many of the same things you were charged for at the time you got your current mortgage. These might include settlement costs, an appraisal, lender's title insurance, underwriting fees, and so on.
Do the Math
You might need to pay discount points (prepaid interest) to get a more favorable rate of interest. If you pay (on average) three percent of the loan amount at the start, the savings for the life of the refinanced loan can be significant. You might be told that the points can be deducted on your income taxes, but because tax regulations are ever-changing, please consult with a tax professional before making any decisions based on this.
An additional expense that borrowers might take into account is that a lower rate of interest will lower the interest amount you will be able to deduct on your federal income taxes. Call us at (281) 778-0805 to help you do the math.
Ultimately, for most people the total of up-front costs to refinance are made up very quickly in savings each month. We will work with you to determine which loan program is perfect for you, considering your cash on hand, the likelihood of selling your house in the next few years, and what effect refinancing could have on your taxes. Call us at (281) 778-0805 to get started.
Curious about refinancing? Call us: (281) 778-0805.