Refinancing My Mortgage
Refinancing my mortgage - When refinancing your mortgage there are a lot of items to consider. One item that needs to be considered is what do you want to achieve by refinancing your home. If you are on an adjustable rate mortgage, also called an ARM, you may need to refinance because your adjustable rate mortgage is getting ready to have an adjustment made to the interest rate. This is a very common reason for refinancing. Either refinancing from an ARM loan to a fixed rate mortgage or refinancing your ARM loan to another ARM loan.
With the large increase in home values in certain areas over the past few years, many people have begun to pull equity out of their home for other financial uses. Investing in other real estate is one of the most common types of uses for this type of refinance. Other options include funding retirment plans, children's college funds and personal businesses. It is often a good idea to work with a both a mortgage professional and a financial planner to determine the best use of the equity in your home.
Due to recent increases in minimum monthly payments by most credit card companies, many people have felt overwhelmed by their monthly payments. That is why, recently, most refinances have been cash out refinances, with the borrowers using cash from the equity in their homes to pay off credit cards and other loans.
There are three main reasons that most people choose to refinance. The first is to change the interest rate they are paying. This would help by lowering your monthly payments. The second main reason to refinance is to change the terms of your mortgage, for example switching from an ARM to a fixed rate, or shortening/extending the years of your loan from a 30-year to a 15-year. The last reason most people will refinance is to access the equity in their home. The equity may be used to consolidate other debts, make renovations to the home, etc.
Tax Deductions as a benefit to Refinancing - As well as monthly savings, tax deductions can also serve as benefits to a refinance
To figure out the amount of your tax savings, compute your tax savings by using the IRS website or the W-4 form you can get from your employer. This allows you to figure how much extra monthly payments you could afford for a house.
Another tax benefit is to use a refinance to eliminate your credit card and other consumer debt. Interest charged on credit cards and all other consumer debt, including car loans, is not tax deductible. When you refinance and take equity out of your home to pay off these debts, you benefit because the interest on your mortgage is tax deductible.
Some of the closing costs that are associated with a refinance are tax deductible. Some can be deducted all at once and others have to be stretched out over the course of the loan. This can help for income tax time and help lower the amount of tax money owed to the IRS or it can help by increasing the amount of money that is coming back to you from the IRS. Consult your tax advisor for specific information as to what is tax deductible and what is not.
Cash Out Mortgage Refinancing - There are many reasons why a borrower might need to pull cash out when refinancing their mortgage loan. Home improvements are one of the main reasons. This often adds value to the home, if done properly.
Cash out from a mortgage refinance is tax-free since it's not income, but rather it's loan proceeds.
Many people take cash out of their home equity to consolidate high interest rate credit card debt. Credit cards often have interest rates of over 20% and none of this interest is tax deductible. Interest paid on the mortgage of your primary residence is tax deductible so the over all savings is often from more than just a lower, stable interest rate.
The great majority of refinances are cash out refinances to consolidate debt. Many borrowers find that a debt consolidation refinance can actually save them several hundred dollars a month in total payments. For those people with little extra money to spare every month, this can bring a great deal of relief.
Cash-Out Refi - "I was told I can get a Cash-Out on my refinacing with my mortgage. How does this work, and will I have higher payments?"
A "cash-out" Refinance simply means you taking a loan out against your home, the interest rates are a lot lower than a personal loan and the term can be stretched out longer therefore reducing the monthly payment compared to other loans.
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Information listed above is to be used for educational purposes only and is not guaranteed