Determining When to Refinance?
Have you ever heard the old rule of thumb that says you should only consider refinancing if your new interest rate will be at least one point under your current one? That may have been valid years ago, but with the fact that refinancing has been costing less over the last few years, it's never the wrong time to think about a new loan! Refinancing your mortgage has a variety of benefits that will often make it worth the up-front expenditure many times over.
You might be able to bring down your interest rate (sometimes significantly) and make smaller monthly payments with a refinanced mortgage loan. Additionally, you could have the option of pulling out some of the equity in your house by "cashing out" some money to remodel your home, consolidate debt, or plan a special vacation. With reduced interest rates, you might also be able to build up home equity more quickly by switching to a shorter term mortgage. Some borrowers are just refinancing to improve monthly cash flow.
Doing the Math
You might need to pay discount points (prepaid interest) to gain a lower rate of interest. When you pay (on average) 3% of the mortgage loan amount at the start, the savings for the term of the new mortgage can be substantial. You might have heard that points can be deducted on your income taxes, but because tax regulations are difficult to keep up with, please consult with your tax professional before making any decisions based on this.
Another expense that borrowers might consider is that a reduced interest rate will lower the interest amount you'll deduct from your taxes. We can help you do the math! Feel free to use our break-even calculator on our mortgage calculators page to help you make some estimates.
Most people find that the savings each month quickly outweigh the initial cost of refinancing. We'll help you determine what loan program is ideal for you, taking into account your cash on hand, the likelihood of selling your house in the next few years, and how refinancing will effect your taxes. Call us to get started.