When to Refinance Mortgage
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.
Artisan Mortgage will 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. Artisan Mortgage 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.
Artisan Mortgage will 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.
