Weighing the Options of Refinancing

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Have you ever heard the pearl of wisdom that states you should only consider refinancing if the new interest rate will be at least 2 points lower than your existing one? Maybe several years ago that was sage advice, but since refinance costs have been falling recently, it could be time to look into it. Refinancing has a variety of advantages that will often make it worth the initial cost many times over.

Advantages

When you refinance, you could be able to lower your interest rate and monthly payment , sometimes considerably. You might also have the option to "cash out" some of the built-up equity in your home, which you will be able use to take care of higher interest debt, add on to your home, or finance a vacation. With lower interest rates, you may also be able to build up home equity faster by switching to a shorter-term loan.

The Cost

Of course, you'll have some fees and expenses during the the refinance process. You'll have to pay the same kinds of fees as you did with your existing mortgage loan. Among these will be settlement costs, an appraisal, lender's title insurance, underwriting fees, and others.

Do the Math

Paying points can result in a better interest rate. If you pay (on average) 3% of the loan amount initially, your savings for the life of the refinanced loan can be significant. We recommend that you consult a tax professional before acting on advice that any points paid may be deducted on your federal income taxes.

Another thing about taxes is that once you reduce your interest rate, naturally you will also be lowering the interest amount that you will be able to deduct on your federal income taxes. This is another cost that some borrowers take into consideration. Call us at 218-237-5128 to help you do the math.

Most people find that the savings per month balance out the up-front cost of refinancing. We will work with you to find out what loan program is perfect for you, taking into account your cash on hand, how likely you are to sell your home in the next few years, and what effect refinancing might have on your taxes. Call us at 218-237-5128 to get started.

Curious about refinancing your home? Give us a call at 218-237-5128.

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