Weighing the Options of Refinancing

Ever hear the old rule of thumb that states you should only consider refinancing if your new interest rate will be at least 2 points below your existing one? Maybe that was sound advice a number of years ago, but as refinance costs have been falling recently, it may be time to look into it. Refinancing your mortgage has a variety of benefits that can make it worth the initial expenditure several times over.

Advantages

When you refinance, you may be able to reduce your interest rate and mortgage payment amount, perhaps significantly. You may also have the option to “cash out” some of your home equity, that you are able use to take care of higher interest debts, improve your home, or plan a vacation. With reduced interest rates, you may also be able to build your home equity faster by changing to a shorter-term mortgage.

Expenses and Fees

All of these advantages do cost something, though. You’ll have the same sort of expenses and fees as with your current mortgage. Included in the list may be an appraisal, underwriting fees, lender’s title insurance, settlement costs, and other fees.

Do the Math

Paying discount points can get you a lower interest rate. When you pay (on average) 3% of the loan amount initially, your savings for the life of the new mortgage loan can be significant. Please talk to a tax professional before acting on rumors that the paid points may be deducted on your federal income taxes.

An additional expense that borrowers might take into account is that a lower rate of interest will lower the interest amount you’ll be able to deduct from your taxes. We can help you do the math! Call us at (203) 526-9345.

Most people find that the savings per month outweigh the initial expenses of refinancing. We can help you explore what your options are, considering the effect a refinance could have on your taxes, how likely you might be to sell in the next couple of years, and your available cash. Call us at (203) 526-9345 to get you started.

Which Refinancing Loan Program is for You?

There are not as many loan program choices as there are applicants, but it seems like it sometimes! Contact us at (203) 526-9345 and we can match you with the loan program that is ideal for you. There are some general questions to ask yourself while you look at the choices.

Reducing Your Monthly Payments

Are your refinance goals to lower your rate and consequently your mortgage payments? In that case, a low, fixed rate loan may be your best option. Maybe you are currently in a mortgage loan with a high, fixed interest rate, or a mortgage in which the rate of interest varies : an adjustable rate mortgage (ARM). Even as interest rates rise, a fixed rate mortgage loan will remain at the same, low interest rate, unlike an ARM. A fixed-rate mortgage can be particularly a good choice if you don’t plan to sell your home within the next five years or so. But if you doplan to sell your home more quickly, you should consider an ARM with a low initial rate to get lower monthly payments.

Cashing Out

Is “cashing out” your main purpose for your refinance? Perhaps you need to make home improvements, pay your child’s college tuition bill, or take your family on a dream vacation. Then you’ll want to get a loan for more than the balance remaining of your present mortgage.With this goal, you will want to find a loan program for a bigger amount than the remaining balance on your current mortgage loan. You might not have an increase in your monthly payemnt, however, if you’ve had your current loan for a long time, and/or your interest rate is high.

Debt Consolidation

Do you want to cash out some home equity to consolidate additional debt? Great idea! If you have enough home equity, paying off other debt with rates higher than your mortgage (credit cards or home equity loans, for example) might be able to save you a lot of money every month.

Getting a Shorter Term Loan

Do you want to build up home equity quicker, and pay off your mortgage sooner? You should consider refinancing with a shorter-term loan, such as a 15-year mortgage loan. Your monthly payments will probably be higher than they were with your longer term mortgage, but the pay-off is: you will pay substantially less interest and will build up equity more quickly. On the other hand, if your existing longer term loan has a low balance remaining, and was closed a while ago, you may even be able to make the change without paying more each month. To help you figure out your options and the many benefits in refinancing, please call us at (203) 526-9345. We are here for you.