 What does it cost to refinance? What are the benefits?
Ever heard the old rule of thumb, you should only refinance
if your new interest rate is at least two points lower? That
may have been true years ago, but with refinancing dropping
in cost over the last few years, it's never the wrong time
to think about a new loan! Refinancing has a number of benefits
that often make it worth the up-front expenditure many times
over.
When you refinance, you might be able to lower your interest
rate and monthly payment -- sometimes significantly. You might
also be able to "cash out" some of the built-up
equity in your home, which you can use to consolidate debt,
improve your home, take a vacation -- whatever! With lower
rates and balances, you might also be able to build up home
equity faster with a shorter-term new mortgage.
All these benefits do cost something, though. When you refinance,
you're paying for most of the same things you paid for when
you obtained your original mortgage. These might include settlement
costs and other fees, an appraisal, lender's title insurance,
underwriting fees, and so on.
You might have to pay a penalty if you refinance your previous
mortgage too quickly. That depends on the terms of your existing
mortgage. These penalties are illegal in some places, and
more often than not when they're there apply only for the
first year or two. We'll help you figure it out.
You might pay points to get a more favorable interest rate.
If you pay (on average) three percent of the loan amount up
front, your savings for the life of the new mortgage can be
significant. You should be aware that the IRS has recently
said that points paid for the purpose of refinancing your
mortgage cannot be deducted in their entirety in the year
you pay them, unless the refinanced loan is primarily for
home improvements. Consult your tax professional before deducting
points you pay on your new mortgage from your federal income
taxes.
Speaking of taxes, if you lower your interest rate, naturally
you will be lowering the amount of mortgage interest payments
you can deduct from your federal income taxes. This is another
cost that some borrowers consider. We can help you do the
math!
Ultimately, for most people the amount of up-front costs
to refinance are made up very quickly in monthly savings.
We'll work with you to determine what program is best for
you, considering your cash on hand, how likely you are to
sell your home in the near future, and what effect refinancing
might have on your taxes.
F.A.Q
We offer a wide range of services including real estate sales,
financing, and property management. Call us today for a free
consultation @ 916-482-6899 or email us at fay@amerpropmgmt.com.
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