Is Refinancing Worth the Cost?

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Have you ever heard the old rule of thumb that says you should only consider refinancing if the new interest rate will be at least two points below your current one? Perhaps several years ago that was good advice, but as refinance costs have been falling recently, it could be time to take a serious look. A refinance can be worth its cost many times over, factoring in the advantages that may come, in addition to a lower interest rate.

Benefits

When you refinance, you may have the ability to lower your interest rate and monthly payment amount, perhaps significantly. You could also have the option to "cash out" a portion of the built-up equity in your residence, which you can use to take care of higher interest debts, add on to your home, or plan a vacation. With lower interest rates, you may also be able to build up home equity more quickly by changing to a shorter-term mortgage loan.

Fees and Expenses

All of these benefits do come with some expense, though. When you refinance, you are paying for most of the same things you paid for at the time you got your current mortgage. Included in your costs might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Doing the Math

Paying discount points can get you a better interest rate. When you pay (on average) three percent of the mortgage loan amount initially, the savings for the term of the refinanced loan can be significant. You may hear that points may be tax deductible, but because tax regulations can be difficult to keep up with, please speak with a tax professional before making decisions based on this.

Another expense that borrowers might consider is that a reduced rate of interest will reduce the interest amount you'll deduct on your taxes. We can help you do the math! Call us at 575-769-9006.

Most borrowers find that the monthly savings balance out the up-front cost of a refinance. We'll work with you to find out what mortgage loan program is right for you, taking into account your cash on hand, how likely you are to sell your home in the near future, and the effect refinancing will have on your taxes. Call us at 575-769-9006 to get you started.

Curious about refinancing your home? Give us a call at 575-769-9006.