When is Refinancing Worth it?

It has been said that only in the case your new interest is at least two points lower, should you refinance your loan. Perhaps that was sound advice a number of years ago, but as refinance costs have been falling recently, it could be a good time to take a serious look. A refinanced mortgage loan is often worth its cost many times over, because of the advantages that can come, as well as a reduced interest rate.

Advantages

You might be able to lower your interest rate (sometimes significantly) and make smaller monthly payments with a refinanced loan. You might also have the option to "cash out" a portion of the built-up equity in your home, that you may use to consolidate debt, improve your home, or take a vacation. You might be able to refinance into a shorter-term mortgage loan, giving you the ability to build your home equity quicker.

Expenses and Fees

All these advantages do cost something, though. When you refinance, you are paying for many of the same things you were charged for when you obtained your current mortgage loan. Included in your costs might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other fees.

You may be obligated to make a penalty payment if you refinance your current mortgage too soon. This depends on the rules of your current loan. However, some of these penalties apply only to the initial couple of years of your mortgage loan. We will help you figure it out: contact us at 312-829-1010.

Doing the Math

You might offer to pay points (prepaid interest) to attain a more favorable rate of interest. The money you will save over the life of the loan could be significant if you have paid up front about three percent of the new loan total. Please consult with a tax professional before acting on rumors that any points paid can be deducted on your federal income taxes.

One more cost that a borrower might take into account is that a reduced interest rate will reduce the interest amount you will be able to deduct from your federal income taxes. Call us at 312-829-1010 to help you do the math.

Most people find that the monthly savings outweigh the up-front expenses of refinancing. We will work with you to determine which mortgage loan program is the ideal fit for you, taking into account your cash on hand, how likely you are to sell your residence in the next few years, and how refinancing might effect your taxes. Call us at 312-829-1010 to get you started.