Most refinance’s in the past few years were done to obtain a better rate and lower their payments. That was a great idea while rates remained low. Recently rates have begun to go the other way and many still wait and wonder if rates will go lower, not higher. Well, I’m happy to inform you still can refinance and get a lower rate. But you have to ask yourself key questions. What is the purpose of my refinance request? Do I have a strategy? Do I have an exit plan? For many refinances does not make sense if you are only saving a few dollars.
For others, the purpose may make a huge impact on their monthly budget. Some purchased a home a few years ago but now have children and have outgrown their home. For some enlarging a room, remodeling, updating the kitchen appliances, AC, repairs, automobile is the reason to get a new loan. So the question sometimes comes up should I tap into my home’s equity or I just received a new $25,000 “Easy Money Offer” guaranteed approved & paid to your account in 24 hours. Wow! Sound familiar? Let’s take a closer look. Think before you leap. Ask yourself how much interest will I be paying? Usually, this loan ranges from 10-16%. Paid off in 7 years your payment will be $441.00 per month. If you pay interest only you will never pay it off. Is the interest tax deductible probably not. Consumer debt is usually not tax deductible. A closer look. Is there a better way? YES! Your home refinance can convert non-tax-deductible debt into tax-deductible debt. Your home can be the most powerful financial tool in your hands. You are the Boss. You use the home equity when and where you please not at the bank’s mercy that would love for you to stay in debt for the rest of your life. So, a debt consolidation might be a powerful event where you take control of your finances.
Refinancing can be expensive with the closing cost ranging from $2200 to $3000… So, you need to make an analysis for how long will it take to make up for the expense. If it will take under 1 & ½ year it might make sense. If you saving $150 to $500 a month these savings might make sense. If you are doing a debt consolidation and converting credit card debt that is non-tax-deductible interest to tax-deductible interest any saving might make sense. It could mean thousands in savings and hopefully knock off ten years off the life of the loan. But to achieve this you need commitment and determination. That would be a fantastic strategy with the goal of paying down your mortgage. There are a number of caveats to this scenario. What if you did pay off your mortgage. Congratulations you win or maybe not. There are those that would disagree. Some say you will lose the only tax deductions homeowners have. That is probably true. So, before you make that last payment ask yourself what other deductions can I use? Now, I can’t think of any. That’s why if you are W2 employed tax-deductible mortgages interest is one of the most important aspects of a refinances. How large or small is my tax-deductible interest? Some financial advisors will assert ‘don’t worry about tomorrow’ by the time you are retired and you have paid off your mortgage your tax bracket will be insignificant that the mortgages interest deduction will no longer matter. Is that true? Unless you plan to live on canned food and Cheerios most folks I know who are retired biggest complain is “Why is my social security being taxed”? Most homeowners still are in need of tax-deductible mortgage interest unless you are self-employed and have many other deductions available. Homeownership Purchase or Refinance remain a powerful financial tool.
Note: Mortgage Interest deduction please consult your tax advisor for the tax deductibility of your specific circumstance and any current tax limitations.
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