Weighing the Options of Refinancing
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Have you ever heard the old rule of thumb that states you should only refinance if your new interest rate is at least 2 points under your current one? Perhaps several years ago that was sage advice, but since refinance costs have been getting lower, it may be time to take a serious look. A refinanced loan is often worth its cost several times over, factoring in the advantages that it brings, along with a lower interest rate.
Advantages of Refinancing
You may be able to lower your interest rate (sometimes substantially) and reduce your monthly payment amount with a refinanced loan. You could also have the option to "cash out" a portion of your home equity, that you are able use to consolidate debt, make home improvements, or finance a vacation. With reduced interest rates, you might also be able to build your home equity faster by switching to a shorter term mortgage.
All of these benefits do cost something, though. You will be charged the same sort of expenses and fees as with your current mortgage. These may include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.
If you refinance your existing mortgage too quickly, there might be a penalty to pay. It all depends on your present mortgage loan agreement. These penalties sometimes just apply for the first year or two. We will help you with the details: contact us at 773-755-9200.
Do the Math
Paying discount points can result in a better interest rate. When you pay (on average) three percent of the loan amount initially, the savings for the term of the refinanced loan can be great. Please consult with a tax professional before acting on advice that these paid points may be deducted on your federal income taxes.
Another cost that borrowers may consider is that a reduced interest rate will lower the interest amount you'll deduct on your taxes. We can help you do the math! Call us at 773-755-9200.
Most borrowers find that the monthly savings outweigh the initial expenses of refinancing. We will help you find out what loan program is right for you, taking into account your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing may have on your taxes. Call us at 773-755-9200 to get you started.
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