By Jami J. Rodgers
Take Advantage of Tax Breaks and Additional Resources
When You Refinance When you refinance, there are a variety of benefits available to you from Uncle Sam.
One of the biggest incentives to owning a home is that the interest you pay on your mortgage is tax-deductible, up to a limit of $1 million.
Interest, up to $100,000 from debt that uses your house as collateral, like a home equity loan, is also tax deductible. Another tax advantage is the amount you pay for points to reduce the interest rate of your mortgage. In most cases, the points on a mortgage are fully deductible in the first year.
When you refinance, the points are deducted over the life of the new loan. If you use part of the refinanced mortgage for home improvement, a portion of these points can be deducted in the same year.
Eliminate Uncertainty of Rising Interest Rates
Various types of mortgages carry different amounts of risk. When you go to refi, you should consider the pros and cons of each type of mortgage. With a fixed rate mortgage, the interest rate stays the same during the life of the loan.
An adjustable rate mortgage's interest rate can fluctuate, and may lead to a higher payment on your mortgage in the future.
Refinancing to a fixed rate mortgage can eliminate this variable payment, allowing you to budget more easily.
Sources: U.S. Federal Reserve Board, U.S. Internal Revenue Service
About the Author: Jami J. Rodgers works in acquisition management for the federal sector in Washington, D.C. Jami holds a B.S. in Spanish with a business option and an international studies minor from The Pennsylvania State University.