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. We'll help you figure it
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. We
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. We'll
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.
here to download the CFPB Home Loan
American Home Lending USA, LLC is headquartered at 230 S Buchanan
St, Ste A Edwardsville, IL 62025. Direct VA lender. Not
an agency of the federal government. Illinois Residential Mortgage
License MB.6760542, Missouri Residential Mortgage License 16-1661-A,
Licensed by the Mississippi Department of Banking and Consumer
Finance #71983. Florida Residential Mortgage License MLD906; Alabama
Consumer Credit License #21842; Georgia Residential Mortgage License
#36496; Maryland Lender License #21919; Tennessee Residential
Mortgage Licensee #117669; Colorado Residential Mortgage License;
Arkansas Residential Mortgage License #116077; Licensed by the DBO
under the California Residential Mortgage Lending Act #4131300..
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