When is Refinancing Worth it?

It has been said that only when your new interest will be at least 2 points lower, should you refinance your loan. Perhaps several years ago that was sage advice, but since refinance costs have been falling recently, it may be a good time to take a serious look. Refinancing your mortgage loan has a variety of benefits that will often make it worth the initial cost a few times over.

Benefits

When you refinance, you might be able to lower the interest rate and mortgage payment , sometimes by a lot. Additionally, you might have the option of pulling out some of your home equity by "cashing out" some funds to fix up your home, consolidate debt, or take your family on a vacation. With reduced rates, you may also be able to build up home equity more quickly by moving to a shorter-term mortgage loan.

Expenses and Fees

As you probably expect, you'll have some fees and expenses during the the refinance process. You will pay the same sort of fees as you did with your present mortgage. Included in the list may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

If you refinance your existing mortgage loan too quickly, you might have a penalty to pay. It all depends on your present mortgage loan contract. There are penalties that just apply for the first couple of years. We will help you with the details: contact us at 503-524-3331.

Doing the Math

You could offer to pay points (prepaid interest) to attain a more favorable interest rate. Your savings over the life of the mortgage loan could be substantial if you've paid up front about three percent of the new loan total. You might be told that the points can be deducted on your income taxes, but because tax regulations are ever-changing, please speak with your tax professional before considering this in your calculations.

Speaking of taxes, once your interest rate is lowered, it follows that you will also be lowering the interest amount that you will be able to deduct from your federal income taxes. This is one more expense that some borrowers consider. Call us at 503-524-3331 to help you do the math.

Ultimately, for most borrowers the amount of up-front costs to refinance will be made up soon in savings each month. We can help you figure out your options, considering the effect a refinance may have on your taxes, how likely you may be to sell in the near future, and your cash on hand. Call us at 503-524-3331 to get you started.