Is it time for a new mortgage?
When deciding whether to refinance your home,
think about the following:
Weigh the savings: check the current market
for available rates and 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
are 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 our loan, instead
of the year that your 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. For more information,
refer to the section Paying Discount Points.
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. So 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" - i.e. 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. But at 7.5%, your same monthly payment
would allow you to borrow nearly $20,000 more!
(Some states restrict cash out refinancing, check
with your loan professional.)
With rates as low as they are this is also a
great time to refinance your home and consolidate
your bills.
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