Refinancing

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Mortgage Refinancing

What is the cost to refinance? Will it benefit you?

Years ago, when interest rates and costs to obtain mortgage were higher, the rule of thumb was that you had to gain at least two points better in your interest rate to justify the costs to refinance. Not true today! With lower interest rates, lower closing costs, and higher loan amounts, the benefits of refinancing must always be considered. Often the costs to refinance can be recouped within 6-months to a year; if cash is being pulled out for investment purposes, it usually always makes sense because of the potentially high return versus the small cost to refinance.

A refinance may reduce your interest rate and monthly payment -- sometimes significantly! Cashing out some built-up equity in your home could be used for debt consolidation, home improvement, a long over due vacation, etc. With reduced rates and balances, it may be feasible to build up home equity faster by utilizing a shorter-term new mortgage.

All these benefits do cost something, however. When you refinance, you will incur most of the same costs as you did with your original mortgage. These include lender underwriting fees, closing cost, lender title insurance, appraisal costs, etc.

You might have to pay a prepay penalty if you refinanced in the past 3-years. Checking to see if you have prepay period and when it ends is the first step in the refinance process. Even if you have a prepay penalty to pay, it may still make sense to refinance--"all things must be considered!" We'll help you figure it out.

You might pay points to obtain a better interest rate (called Buying Down the Rate). Buying Down the Rate could result in significant savings for the life of the new mortgage. IRS has limitations on what can be written off for an owner occupied residence. Other more beneficial guidelines apply to refinances of rental property. Please consult your tax professional--ask me about my tax preparer!

The up-front costs to refinance is often recouped very quickly through reduced monthly savings. We'll help you determine the best program for you considering your cash in bank, whether you plan to sell or refinance your home in the near future, the effects refinancing might have on your taxes. If you are investing the cash you are getting out, a few more numbers will need to be crunched to determine if refinancing makes sense from an investment standpoint.