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To Refinance or Not To Refinance?

Regardless of the reason to refinance a home, the basic question to ask is: “Do you plan to live in the home long enough to recapture the cost of refinancing?” Expenses involved in refinancing can either be paid in cash or rolled into the new mortgage.

From a financial standpoint, the break-even point is achieved when the cost of refinancing has been recaptured by the monthly savings. For example, it would take ~23 months to recapture $4,000 of refinance costs if your monthly payment could be reduced by $175/month.

There are many reasons to refinance and also many different ways in which to do so. Choosing the right one depends on your current situation, short term and long term goals, interest rate, loan term, loan type, etc. After evaluating many factors, refinancing may allow you to:

  1. Lower your interest rate
  2. Shorten the loan term in order to build equity faster and pay off the loan sooner.
  3. Lower your payment to reduce your monthly cost of housing.
  4. Convert an ARM (adjustable rate) to a FRM (fixed rate) to stabilize your payment due to concern of rising interest rates.
  5. Cash out equity to have money for another purpose (renovation, college tuition, new appliances, etc.)
  6. Combine a first and second mortgage.
  7. Consolidate personal debt so the interest is tax deductible.
  8. Payoff higher cost debt such as credit cards, student debt, etc.
  9. Remove a person from a loan as in the case of a divorce.

Points paid to purchase a principal residence are tax deductible completely in the year paid. However, the points must be spread over the life of the mortgage on a refinance. For that reason, consider getting a “par” value loan with no points. It may have a slightly higher rate, but the interest will be fully deductible, and it will lower the cost of refinancing. Determine the break-even point on your situation by using the Refinance Analysis.

Call Sea Scape Properties for a recommendation for a trusted mortgage professional who can help you through a beneficial (and seamless) refinance process. Sea Scape Properties is here to help with all of your real estate needs, from buying, selling, and investments to long term rentals in the Greater Wilmington area and vacation rentals on Wrightsville Beach, Carolina and Kure Beaches, and Topsail Island. Call today!

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