Weighing the Options of Refinancing

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Have you ever heard the pearl of wisdom that says you should only consider refinancing if the new interest rate will be at least two points lower than your existing one? Perhaps several years ago that was wise advice, but as refinance costs have been getting lower, it could be a good time to take a serious look. A refinance is often worth its cost many times over, considering the advantages that can come, as well as a lower interest rate.

Advantages

When you refinance, you might have the ability to reduce your interest rate and mortgage payment amount, sometimes significantly. Additionally, you might be given the option of tapping into the equity in your property by "cashing out" some funds to renovate your home, consolidate debt, or take your family on a vacation. With reduced interest rates, you might also get the chance to build up home equity more quickly by changing to a shorter term mortgage.

Fees and Expenses

All of these benefits do cost something, though. When you refinance, you are paying for many of the same things you were charged for during your current mortgage loan. Included in your costs will typically be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

Do the Math

You could offer to pay discount points (prepaid interest) to gain a more favorable rate of interest. If you pay (on average) three percent of the loan amount initially, your savings for the life of the new mortgage can be substantial. You may hear that the points can be tax deductible, but as tax regulations can be ever-changing, please consult with your tax professional before making any decisions based on this.

Another expense that borrowers may take into account is that a lower rate of interest will reduce the interest amount you'll deduct from your federal income taxes. Call us at (337) 264-9990 to help you do the math.

In the end, for most people the total of initial costs to refinance will be paid back very quickly in savings each month. We'll help you determine what mortgage program is ideal for you, considering your cash on hand, how likely you are to sell your house in the next few years, and the effect refinancing will probably have on your taxes. Call us at (337) 264-9990 to get you started.

Want to know more about refinancing your home? Give us a call at (337) 264-9990.

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