When is Refinancing Worth it?

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Have you ever heard the old rule of thumb that states you should only refinance if the new interest rate will be at least two points lower than your current one? That could have been sound advice years ago, but with refinancing dropping in cost over the last few years, it's a good time to consider a new mortgage loan! A refinanced mortgage loan is often worth its cost several times over, because of the advantages that may come, in addition to a reduced interest rate.


You may be able to bring down your interest rate (sometimes substantially) and make smaller mortgage payments with your refinanced mortgage loan. You may also be able to "cash out" some of the built-up equity in your home, which you can use to consolidate debts, improve your home, or take a vacation. With lower interest rates, you might also be able to build your home equity more quickly by switching to a shorter-term loan.

The Cost

Of course, you will have to pay for the process of refinancing. You will have the same types of fees as with your present home loan. Included in your costs will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Do the Math

You might offer to pay discount points (prepaid interest) to attain a more favorable rate of interest. Your savings over the life of the mortgage loan might be significant if you have paid up front about 3% of the new loan total. We recommend that you consult with a tax professional before acting on hear-say that these paid points can be deducted on your taxes.

Another cost that borrowers may consider is that a reduced interest rate will lower the interest amount you'll deduct on your taxes. Call us at 703.255-5810 to help you do the math.

Most borrowers find that the savings per month outweigh the up-front cost of a refinance. We can help you figure out your options, considering the effect a refinance could have on your taxes, how likely you might be to sell in the near future, and your cash on hand. Call us at 703.255-5810 to get you started.

Want to know more about refinancing? Call us: 703.255-5810.

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