When is Refinancing Worth it?

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Ever heard the pearl of wisdom that states you should only refinance if the new interest rate is at least 2 points below your present one? Maybe that was good advice a number of years ago, but as refinance costs have been getting lower, it could be time to look into it. Refinancing your mortgage has some advantages that often make it worth the up-front cost a few times over.


You may be able to lower your interest rate (sometimes by a lot) and have smaller monthly payments with a refinanced mortgage. You might also be able to "cash out" a portion of your home equity, that you may use to consolidate debts, add on to your home, or finance a vacation. With reduced rates, you might also be able to build your home equity more quickly by switching to a shorter term loan.

The Cost

As you probably expect, you will have some fees and expenses during your process of refinancing. With your refinance, you're paying for basically the same things you were charged for during your existing mortgage loan. These might include settlement costs, appraisal fees, lender's title insurance, underwriting expenses, and others.

Doing the Math

Paying discount points can help you get a better interest rate. The money you will save on the life of the mortgage loan may be substantial if you've paid up front about three percent of the new loan balance. You might have heard that the points may be deducted on your income taxes, but as tax regulations can be difficult to keep up with, we urge you to consult a tax professional before depending on this.

Another cost that borrowers might consider is that a reduced rate of interest will lower the interest amount you'll be able to deduct from your federal income taxes. Call us at 773-557-1000 to help you do the math.

Most people find that the monthly savings quickly balance out the initial cost of refinancing. We will work with you to determine which program is the right fit for you, considering your cash on hand, how likely you are to sell your house in the near future, and what effect refinancing could have on your taxes. Call us at 773-557-1000 to get you started.

Curious about refinancing? Call us: 773-557-1000.