When is Refinancing Worth it?

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Some have said that only when your new interest is at least 2 points below your current rate, should you refinance your mortgage. Perhaps several years ago that was wise advice, but as refinance costs have been falling recently, it may be time to take a serious look. A refinanced loan can be worth its cost several times over, considering the benefits that can come, in addition to a reduced interest rate.

Benefits from Refinancing

You could be able to lower your interest rate (sometimes by a lot) and make smaller mortgage payments with a refinanced loan. You also might have the option of pulling out some of your home equity by "cashing out" a sum of money to fix up your home, consolidate debt, or plan a special vacation. With reduced interest rates, you might also get the chance to build up home equity faster by switching to a shorter-term mortgage loan.

Fees and Expenses

All of these advantages do come with some expense, though. When you refinance, you're paying for many of the same things you paid for when you got your existing mortgage loan. Among these can be settlement costs, an appraisal, lender's title insurance, underwriting fees, and others.

Do the Math

You could need to pay points (prepaid interest) to get a lower rate of interest. The money you will save over the life of the mortgage could be substantial if you've paid up front about 3% of the new loan total. We recommend that you consult a tax professional before acting on hear-say that these points paid can be deducted on your federal income taxes.

An additional expense that a borrower may take into account is that a reduced interest rate will lower the interest amount you'll be able to deduct on your federal income taxes. We can help you do the math! Call us at 703.255-5810.

Most people find that the monthly savings balance out the initial expenses of refinancing. We will work with you to determine which mortgage loan program is the ideal fit for you, considering your cash on hand, the likelihood of selling your residence in the near future, and what effect refinancing might have on your taxes. Call us at 703.255-5810 to get you started.

Want to know more about refinancing? Call us at 703.255-5810.

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