Types of Loans
Are interest rates lower now than when you purchased your home? If they are, it’s
time to think about refinancing your home. You could lower your interest rate and
your monthly payment and save thousands in repayments. So why not take a few minutes
to look at our options for refinancing? This could be the perfect opportunity to
save money!
Deciding to Refinance
When deciding whether or not to refinance your home, here are some things to think
about. Weigh the savings and check the current market for available rates to determine
the costs associated with refinancing. These costs can include an appraisal, points,
and various fees. Use our mortgage calculator to see if refinancing your home is
right for you.
Consider how long you plan to stay in your home. If you’re planning on moving
in a few years, then the month-to-month savings of refinancing your home may not
outweigh the costs. But, if you’re planning to live in your home for at least three
to five years, you might benefit from paying the points and closing costs to get
the lowest available rate.
Think about your taxes. Lower interest on your home loan means you’ll have
less to deduct on your federal income tax return, which may impact the amount of
money you’ll save refinancing your home. (Consult your tax professional.)
You should also consider that the IRS currently requires that you deduct any interest
point paid up-front for refinancing over the life of your loan, instead of the year
that you refinanced. In other words, any point you pay for a lower interest rate
cannot be deducted all at once, instead, you will be required to spread out your
deduction for the duration of the new loan.
Calculate your current equity. If you’ve had your current mortgage for at
least three years, you’ve probably reduced your balance by several thousand
dollars. Also, you may be able to “roll” your refinancing closing costs
into your new loan and still end up with a mortgage that is smaller than your original
one, with a lower interest rate and monthly payment.
Get some cash. One way to make refinancing work for you is to “cash out”
and refinance for more than the balance of your current mortgage. With favorable
interest rates, you may be able to cash out without increasing your monthly payments.
For example, at an interest rate of 8.5%, the payment on a $200,000, 30-year, fixed
rate mortgage is $1,538. The same monthly payment, at 7.5%, would allow you to borrow
nearly $20,000 more! (Some states restrict cash out refinancing, check with your
loan professional.)
