When to Refinance

Home Refinancing When to Refinance

Is Refinancing Worth the Cost?

Have you ever heard the old rule of thumb that says you should only consider refinancing if your new interest rate is at least two points lower than your existing one? Perhaps several years ago that was wise advice, but as refinance costs have been getting lower, it could be a good time to look into it. Refinancing your loan has a variety of benefits that will often make it worth the initial expenditure a few times over.

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When you refinance, you might have the ability to reduce your interest rate and monthly payment , sometimes considerably. You might also have the ability to “cash out” a portion of your home equity, which you are able use to consolidate debts, make home improvements, or finance a vacation. With lower interest rates, you may also get the chance to build your home equity faster by switching to a shorter term mortgage.

Fees and Expenses

Of course, you will have to pay for your the refinance process. You’ll have to pay the same kinds of expenses and fees as you did with your current home loan. These probably include settlement costs, appraisal fees, lender’s title insurance, underwriting expenses, and so on.

Do the Math

You might investigate paying points to receive a lower interest rate. Your savings over the life of the mortgage may be substantial if you’ve paid up front about 3% of the new loan total. We recommend that you talk to a tax professional before acting on rumors that any points paid can be deducted on your federal income taxes.

Another thing about taxes is that once you lower your interest rate, of course you will also be lowering the interest amount that you’ll be able to deduct on your federal income taxes. This is another expense that some borrowers consider. We can help you do the math! Call us at (401) 583-4150.

Most people find that the monthly savings quickly outweigh the initial cost of a refinance. We can help you explore your options, considering the effect a refinance may have on your taxes, whether you are likely to sell your home in the next couple of years, and your available cash. Call us at (401) 583-4150 to get you started.


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