Is Refinancing Worth the Cost?

Have you ever heard the pearl of wisdom that says you should only refinance if your new interest rate is at least two points under your existing rate? That might have been valid a while back, but with the fact that refinancing has been costing less in recent years, it's never the wrong time to think about a new mortgage! Refinancing your mortgage loan has a number of advantages that often make it worth the initial expenditure many times over.

Advantages of Refinancing

You could be able to bring down your interest rate (sometimes substantially) and reduce your monthly mortgage payment amount with your refinanced mortgage. You could also be able to "cash out" a portion of the built-up equity in your residence, that you will be able use to consolidate debts, improve your home, or plan a vacation. With reduced rates, you might also get the chance to build your home equity faster by switching to a shorter-term mortgage.

Fees and Expenses

All of these benefits do come with some expense, though. You'll have to pay the same types of expenses and fees as with your existing mortgage loan. Included in the list might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

You could be required to make a penalty payment for refinancing your present mortgage too quickly. That depends on the terms of your existing mortgage loan. However, the penalties may apply only to the initial few years of your mortgage loan. We will help you sort through the details: contact us at 303-843-9171 x 14.

Doing the Math

Paying discount points can get you a lower interest rate. When you pay (on average) 3% of the loan amount at the start, your savings for the term of the refinanced mortgage can be significant. You may have heard that the points may be deducted on your income taxes, but as tax regulations are difficult to keep up with, we urge you to speak with your tax professional before depending on this.

Another thing about taxes is that once you reduce your interest rate, naturally you will also be reducing the paid interest amount that you'll be able to deduct from your taxes. This is another expense that some borrowers take into consideration. Call us at 303-843-9171 x 14 to help you do the math.

Most borrowers find that the savings each month outweigh the initial expenses of refinancing. We can help you explore your options, considering the effect a refinance could have on your taxes, how likely you might be to sell in the near future, and your available cash. Call us at 303-843-9171 x 14 to get you started.