Breaking the Code: Mortgage Refinancing
By: Rachel Speigle Dunnigan, CPA, MSA, CFP®
We’ve seen many clients refinancing their mortgage over the past year due to historically low interest rates. If you’ve been considering refinancing but haven’t pulled the trigger, don’t worry - it’s not too late! Mortgage refinance rates have dropped across all loan types even over the last 10 days. While a fraction of a percent can make a substantial difference in savings, there are other considerations that may be useful depending on your individual situation.
Lender Intricacies
All mortgage lenders are different and the deals they may offer their borrowers can vary. Some may be offering refinances without closing costs or points. On the flip side, always read the fine print! Make sure you shop around, understand what fees or closing costs are being included, and how new loan terms could affect you in the future.
Be Creative
If 2020 allowed you to save up a bit of cash usually spent on vacation or restaurant visits, you might consider reducing the length of the loan with a lower interest rate. While the monthly payment may increase, the total amount spent on interest over the life of the loan may decrease significantly. If you currently have an adjustable-rate mortgage, you may think about locking into a lower rate on a fixed rate mortgage. Still stuck at home and finally getting to that bathroom renovation? A cash-out refinance might be right up your alley. There is no one-size-fits-all approach to refinancing, so make sure that you come to the table with an open mind.
Tax Implications
As a reminder, if your original home purchase or loan was on or before December 15, 2017, the maximum mortgage amount that qualifies for deductible interest if $1,000,000. For purchases after December 15, 2017, the maximum loan balance is $750,000. The amount includes loans to purchase or substantially improve your home. Traditional closing costs are not deductible. However, if you pay points related to a refinance, the points can be amortized over the life of the new loan.
Many companies have online calculators in order to quickly show the cost savings with a refinance. The low rates that we’re seeing can be attributed to the growing economy, inflation rates, and increased employment. While you can still take advantage of this current market, don’t wait too long! We are beginning to see mortgage rates inching higher as the economy recovers.
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.