Weighing the Options of Refinancing

Ever heard the old rule of thumb that says you should only refinance if your new interest rate is at least two points under your current rate? Maybe several years ago that was wise advice, but since refinance costs have been falling recently, it may be a good time to look into it. A refinanced loan may be worth its cost several times over, because of the advantages that it brings, along with a lower interest rate.

Benefits

You may be able to lower your interest rate (sometimes significantly) and make smaller mortgage payments with your refinanced loan. You may also be able to "cash out" a portion of the built-up equity in your residence, that you are able use to consolidate debt, make home improvements, or plan a vacation. With reduced rates, you may also be able to build your home equity faster by switching to a shorter term mortgage loan.

The Cost

Of course, you'll have to pay for the the refinance process. You will be charged the same sort of fees as you did with your existing home loan. Among these might be settlement costs, appraisal fees, lender's title insurance, underwriting fees, and so on.

When you refinance your existing mortgage too quickly, you may have a penalty to pay. That depends on the rules of your current mortgage. However, some of these penalties apply only to the initial few years of the loan. We will help you with the details: contact us at 602-953-1700.

Do the Math

You might need to pay discount points (prepaid interest) to attain a lower interest rate. When you pay (on average) three percent of the loan amount at the start, your savings for the life of the refinanced mortgage can be substantial. You may hear that the points may be tax deductible, but since tax regulations are ever-changing, please consult with your tax professional before depending on this.

Speaking of taxes, when your interest rate is reduced, of course you will also be reducing the interest amount that you'll be able to deduct from your federal income taxes. This is one more expense that borrowers consider. Call us at 602-953-1700 to help you do the math.

In the end, for most people the amount of initial costs to refinance will be paid back very quickly in savings each month. We can help you find out your options, considering the effect a refinance might have on your taxes, if you are likely to sell your home in the next couple of years, and your money on hand. Call us at 602-953-1700 to get you started.