Report Reveals 5 Secrets To Choose the cheapest refinance mortgage to suit your budget
Does Mortgage Refinancing Make Sense?
When borrowers use the excess for any other purposes, another set of rules prohibits deductions for payments of interest on ďconsumer loans.Ē This wide-ranging category includes refinance mortgages credit card bills, auto loans, medical expenses and other personal debts such as overdue federal and state income taxes. There is, though, a limited exception for interest on student loans, one of those ďabove-the-lineĒ subtractions to arrive at adjusted gross income, the amount on the last line of the first page of the 1040 form.
But most borrowers are able to sidestep these restrictions on deductions for consumer interest, thanks to the rules for home equity loans. Those rules allow them to deduct the entire interest as long as the amount in excess of the existing mortgage plus all other home equity loans donít exceed $100,000, dropping to $50,000 for married couples filing separate returns. It makes no difference how borrowers use the proceeds.
When their refinanced loans are partly home acquisition loans and partly home equity loans, thereís an overall limit of $1,100,000, which is a combination of $1,000,000 from the home acquisition debt and $100,000 home equity debt. That number drops to $550,000 for married couples filing separately.
When the loans exceed the ceiling of $1,000,000 for home acquisition loans and $100,000 for home equity loans, the excess generally is categorized as nondeductible personal interest. The general disallowance is subject to exceptions for loan proceeds used for business or investment purposes.
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You need to weigh the pros and cons of your old mortgage and a new mortgage to decide. In general, mortgage refinancing is a good move when you can save money by locking in a lower interest rate or payment, shorten your loan term, or restructure debt optimally.
Once you understand the costs, evaluate how much youíll save over time and how long it will take to recoup any up-front costs associated with mortgage refinancing. Will you keep the loan (or live in the home) long enough to make it worthwhile?
When itís a Good Idea
Mortgage refinancing is a good idea when youíll truly benefit from a new loan. Some clues that it might be a good idea are:
Interest rates are low
Your credit has improved since you got your first loan
You will keep the loan for a long time
You can avoid getting stung by a high risk mortgage
You can get an amortizing loan instead of an interest only loan
When itís a Bad Idea
You should avoid refinancing your mortgage if youíll waste money and increase risk. Sometimes having a lower interest rate and monthly payment can cost more in the long run - even if they help you today. You also need to be sure you can recoup all the mortgage refinancing fees before you pull the trigger.
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