Weighing the Options of Refinancing

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Ever heard the pearl of wisdom that says you should only refinance if your new interest rate is at least two points below your present one? Maybe several years ago that was sage advice, but since refinance costs have been falling recently, it could be a good time to look into it. A refinanced mortgage is often worth its cost many times over, considering the benefits that it brings, as well as a reduced interest rate.

Benefits from Refinancing

When you refinance, you might have the ability to lower the interest rate and monthly mortgage payment amount, sometimes significantly. Additionally, you could be given the option of pulling out some of your home equity by "cashing out" some funds to remodel your home, consolidate debt, or take your family on a vacation. With lower rates, you may also be able to build your home equity faster by switching to a shorter term loan.

Fees and Expenses

All these advantages do cost something, though. When you refinance, you're paying for basically the same things you were charged for when you obtained your original mortgage. These could include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and so on.

Doing the Math

You might need to pay points (prepaid interest) to gain a better rate of interest. The amount you'll save on the life of the mortgage may be significant if you've paid up front about 3% of the new loan balance. You might have heard that these points may be deducted on your income taxes, but as tax regulations are difficult to keep up with, we urge you to consult with your tax professional before depending on this.

Another expense that borrowers may consider is that a lower interest rate will lower the interest amount you'll be able to deduct on your federal income taxes. Call us at (718) 477-4405 to help you do the math.

Most borrowers find that the savings each month outweigh the initial cost of a refinance. We will work with you to determine what mortgage program is right for you, considering your cash on hand, the likelihood of selling your house in the near future, and what effect refinancing will have on your taxes. Call us at (718) 477-4405 to get started.

Want to know more about refinancing? Call us at (718) 477-4405.

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