When is Refinancing Worth it?
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Some have said that only in the case your new interest is at least two points lower, should you refinance your mortgage. That may have been true a while back, but with refinancing dropping in cost in recent years, it is never the wrong time to think about a new mortgage! Refinancing your mortgage loan has a variety of benefits that often make it worth the up-front cost a few times over.
You could be able to lower your interest rate (sometimes significantly) and have smaller monthly payments with a refinanced mortgage. Additionally, you could have the option of tapping into the equity in your home by "cashing out" a sum of money to remodel your home, consolidate debt, or take your family on a vacation. With reduced interest rates, you might also get the chance to build up home equity more quickly by moving to a shorter-term loan.
All these advantages do cost something, though. With your refinance, you are paying for basically the same things you were charged for at the time you obtained your original mortgage. These can include settlement costs, appraisal fees, lender's title insurance, underwriting fees, and others.
Doing the Math
You might need to pay discount points (prepaid interest) to gain a lower rate of interest. If you pay (on average) 3% of the loan amount up front, your savings for the life of the refinanced mortgage can be substantial. You may hear that these points may be tax deductible, but as tax regulations are difficult to keep up with, please consult with a tax professional before depending on this.
One more expense that borrowers may take into account is that a reduced interest rate will reduce the interest amount you will be able to deduct on your federal income taxes. We can help you do the math! Call us at (973) 601-2122.
Most borrowers find that the savings each month balance out the up-front cost of a refinance. We can help you figure out your options, considering the effect a refinance could have on your taxes, how likely you might be to sell in the next couple of years, and your money on hand. Call us at (973) 601-2122 to get started.
Curious about refinancing? Give us a call at (973) 601-2122.