Is Refinancing Worth the Cost?

Have you ever heard the pearl of wisdom that states you should only consider refinancing if the new interest rate is at least two points below your existing rate? That may have been true a while back, but since refinancing has been costing less in recent years, it's a good time to consider a new loan! Refinancing your mortgage loan has various advantages that often make it worth the up-front cost several times over.

Benefits from Refinancing

When you refinance, you could have the ability to reduce your interest rate and mortgage payment , perhaps significantly. You may also be able to "cash out" a portion of your equity, which you are able use to take care of higher interest debt, make home improvements, or finance a vacation. With reduced interest rates, you might also be able to build your home equity faster by moving to a shorter-term mortgage.

The Cost

As you probably expect, you'll have some fees and expenses during your process of refinancing. You'll pay the same types of expenses and fees as you did with your existing home loan. Included in your costs may be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

You may be obligated to pay a penalty for refinancing your current mortgage loan too quickly. It all depends on your existing loan contract. However, some of these penalties apply only to the initial few years of your mortgage loan. We'll help you figure it out: contact us at 505-881-2000.

Doing the Math

Paying discount points can get you a lower interest rate. Your savings over the life of the mortgage could be significant if you have paid up front about three percent of the new loan balance. You may have heard that these points may be tax deductible, but as tax regulations are difficult to keep up with, we urge you to consult with a tax professional before making any decisions based on this.

An additional cost that a borrower might consider is that a lower interest rate will reduce the interest amount you will deduct from your federal income taxes. Call us at 505-881-2000 to help you do the math.

All things considered, for most the total of up-front costs to refinance will be paid back soon in savings each month. We will help you find out which mortgage 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 could have on your taxes. Call us at 505-881-2000 to get you started.