Should I consider refinancing? What are my benefits?
Ever heard the old rule of thumb, you should only refinance if your new interest rate is at least two percent lower? That may have been true years ago when the average mortgage balance was much lower than today, but with mortgage balances up and refinancing dropping in cost over the last few years, it's never the wrong time to think about a new loan! Refinancing has a number of benefits that often make it worth the new loan costs many times over.
When you refinance, you might want to lower your interest rate and monthly payment. You might also be able to "cash out" some of the built-up equity in your home, which you can use to consolidate debt, improve your home, take a vacation, cover major expenses such as tuition, weddings -- whatever! With lower rates and balances, you might also be able to build up home equity faster on a shorter-term mortgage.
Refinancing creates a new loan. When you refinance, you'll pay most of the same costs you paid for when you obtained your original mortgage. These might include settlement costs and lender fees, an appraisal, lender's title insurance, processing fees, and so on. Depending on your available equity you may want to Roll-In the costs into the new loan as many borrowers elect to do, take a higher rate called a Buy-Up to pay some or all of the closing costs if available at the time therefore keeping the balance lower or pay them yourself out-of-pocket at closing. Try out our easy to use Refi Breakeven Calculator now in the left column or call us for help.
You Don't have to pay points. Zero Point Loans are available and very popular. But you might elect to pay points to Buy-Down to a lower interest rate. If you decide to pay points we can help you analyze the recovery time it will take you to breakeven through the lower interest rate it buys you. Consult your tax professional before deducting points you pay on your new mortgage from your federal income taxes. You should take a look at the point options available. They can and often do offer a very good long term result due to the lower rate you buy down to in today's market.
Does your current loan have a penalty if you refinance your current mortgage too quickly? That depends on the terms of your existing mortgage. More often than not when you have one of these penalties on your current mortgage it applies only for the first one to five years. It may be very important to your pay off. We can help you understand it.
Speaking of taxes If you lower your interest rate, naturally you will be lowering the amount of mortgage interest payments you can deduct from your federal income taxes. This is another cost that some borrowers consider. But, Washington is considering many changes in this and other areas. Always seek the advise of your tax professional.
For most people the costs to refinance are ultimately made up very quickly in monthly savings. We'll work with you to determine what program is best for you, considering your situational needs and how likely you are to sell your home or pay off the new mortgage in the near future. If we don't believe it is in your interest to refinance, we will tell you.
