Ever hear the pearl of wisdom that states you should only consider refinancing if the new interest rate is at least 2 points below your existing rate? Maybe several years ago that was sage advice, but as refinance costs have been falling recently, it could be time to take a serious look. Refinancing your mortgage loan has some benefits that often make it worth the initial expenditure many times over.

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Advantages

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You may be able to lower your interest rate (sometimes substantially) and reduce your monthly mortgage payment amount with your refinanced loan. You also might have the option of tapping into your home equity by "cashing out" some money to fix up your home, consolidate debt, or take your family on a vacation. You might be able to refinance into a shorter-term mortgage loan, giving you the ability to build up your equity quicker.

 

Expenses and Fees

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

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Do the Math

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You might consider paying points to receive a reduced interest rate. When you pay (on average) three percent of the mortgage loan amount up front, your savings for the term of the new mortgage loan can be significant. You might hear that points may be tax deductible, but since tax regulations can be difficult to keep up with, please consult with a tax professional before making any decisions based on this.

Another cost that a borrower may consider is that a reduced interest rate will reduce the interest amount you will deduct from your taxes. Call us at (216) 752-9264 to help you do the math.

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All things considered, for most borrowers the amount of up-front costs to refinance are made up very quickly in monthly savings. We can help you figure out what your options are, considering the effect a refinance could have on your taxes, whether you are likely to sell your home in the next couple of years, and your available cash.