When is Refinancing Worth it?

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Ever heard the pearl of wisdom that says you should only consider refinancing if your new interest rate is at least 2 points lower than your current one? Perhaps several years ago that was sage advice, but as refinance costs have been getting lower, it could be a good time to look into it. Refinancing has a number of benefits that can make it worth the up-front cost several times over.

Benefits

When you refinance, you might have the ability to reduce the interest rate and monthly mortgage payment , perhaps significantly. You might also have the option to "cash out" a portion of the built-up equity in your home, that you are able use to consolidate debts, improve your home, or take a vacation. You could have the option to refinance into a shorter-term mortgage, giving you the ability to build your home equity faster.

Fees and Expenses

All these benefits do come with some expense, though. You will have to pay the same sort of fees as you did with your current home loan. These probably include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.

Doing the Math

You could need to pay points (prepaid interest) to attain a better rate of interest. When you pay (on average) 3% of the mortgage loan amount up front, the savings for the term of the refinanced mortgage loan can be great. We recommend that you consult a tax professional before acting on rumors that the paid points can be deducted on your taxes.

Another expense that a borrower may take into account is that a reduced rate of interest will lower the interest amount you'll deduct on your federal income taxes. Call us at 703-288-0777 to help you do the math.

All things considered, for most the amount of up-front costs to refinance are paid back soon in monthly savings. We will work with you to determine which mortgage loan program is the ideal fit for you, looking at your cash on hand, how likely you are to sell your residence in the near future, and the effect refinancing could have on your taxes. Call us at 703-288-0777 to get started.

Want to know more about refinancing your home? Call us: 703-288-0777.

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