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 you want. 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 pay points to get a more favorable interest rate. If you pay (on average) one 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.

HARP – Home Affordable Refinance Program

These types of programs are generally specific to home owners that would like to refinance to a lower rate. During recent years many properties haven’t appraised for as much as in years past. If your home loan is owned by Fannie Mae or Freddie Mac (even if you make payments to an investor like Wells Fargo, Bank of America or Chase among others) we may be able to arrange for financing well excess of 100% of the home’s current value whether you have private mortgage insurance or not. Call us today to see if this program will work for you!