By Jami J. Rodgers
Entertainment Magazine Online Columnist
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.