Ever heard the old rule of thumb, you should only refinance if your new interest rate is at least two points lower? This rule of thumb is much too simplistic.

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, or take a vacation.  With lower rates and balances, you might also be able to build up home equity faster with a shorter-term new mortgage, or make discretionary extra monthly payments.

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 need to determine if you have a pre-payment penalty on your existing loan before your consider refinancing.  If you have a pre-payment penatly on your existing mortgage, it is important to note the date that this expires.  We can help you figure out this date.

What is the appropriate Rate and Point Cost combination for you?  We will run a Total Cost Analysis for you and give you various rate and point cost scenarios and show you your Total Cost over the anticipated time that you will hold the new mortgage.  By showing you various rate and point cost options we can help you determine the best rate and pricing for your new mortgage.

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. This is part of our Total Cost Analysis.

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.

Contact Paul Schectman at Viva Financial to run your Total Cost Analysis.