Refinance: Guide to refinancing your home

Home mortgage refinancing is a way of changing a secured loan into a new loan secured by the same object. A home mortgage refinance can be a way of lowering you monthly payments for your mortgage, since you can use the home mortgage refinancing to change a higher interest loan into a lower interest loan. You can also use home mortgage refinancing as a way of changing a 30 year mortgage into a 20 year or 15 year mortgage. This way, you will build equity faster and if your economy allows a shorter term a home mortgage refinancing can be a better way of accumulating assets than investing your free cash in stocks, bonds etcetera.

You can naturally also use home mortgage refinance in order to change a short term mortgage into a long term mortgage if you need to decrease you monthly payments. Keep in mind that such a home mortgage refinance will mean that you will be stuck with your mortgage during in additional number of years and that the interest rate might be higher. It can however be a much wiser decision to increase the amount of free cash by doing a home mortgage refinance, than by obtaining a new and unsecured loan at a higher interest rate, such as expensive card credits.

If you have high interest debts, such as credit card debts, home mortgage refinance can be a way of dealing with this debt. Since you offer your house as collateral, you will usually be able to negotiate a much lower interest rate than you pay for the high interest credit card debts. You should however be careful before doing this, since changing an unsecured loan into a secure one always has legal implications. Secured loans are for instance treated differently during bankruptcy than unsecured loans. Before using home mortgage refinance to handle high credit card debt you should ideally seek financial counseling and try to determine why you become so heavily in debt in the first place. If overspending is the reason behind your financial situation, you must be careful and change your behavior since you might not have any equity left the next time you need to manage a large credit card debt and home mortgage refinance can thus be out of reach. Over spending is however not the only reason behind high interest debts. Illness, unemployment, divorce, death of a spouse and legal problems can rapidly cause high interest debts to accumulate and converting these debts into low interest debts using home mortgage refinance can make them easier to cope with.

When you use home mortgage refinance to convert several high interest debts you will not only save money due to the lower interest rate. By having one large loan instead of several smaller ones, you will typically save money on administration fees which makes home mortgage refinance a good idea if you have many credits. Some credit card companies will charge you every time they send out a bill and the amounts will soon add up. Home mortgage refinance can also halt escalating costs that are caused by late fees, penalty fees and other type of additional costs linked to your different credits. Home mortgage refinance can also be used to improve a poor credit rating if you are already behind on your payments. If your poor credit rating is still above 500, you will usually be eligible for a bad credit home mortgage refinance. Home mortgage refinance will require you to use your house as collateral, but it is still usually a better choice than desperately applying for new unsecured credits in order to handle your old debts. The new unsecured credits will typically come with a very high interest rate since your credit score is damaged. By offering you house as collateral for the home mortgage refinance, you will be able to negotiate a lower interest rate since your credit score will be less important.

Home mortgage refinancing can make you eligible for certain tax deductions if you have costs associated with your home mortgage refinance. If you itemize when doing your taxes, the so called “points” that you have paid during the home mortgage refinancing can be counted as mortgage interest and thereby become deductible. Points paid during home mortgage refinancing are treated differently than the points that you paid for your first mortgage. During certain circumstances the points that you paid for your first mortgage will be deducted in the same year as you paid them. The points that you pay for home mortgage refinancing will instead be deducted over the entire life of the mortgage.

After home mortgage refinance you must divide the points that you paid for the home mortgage refinancing with the total amount of payments that you will do during the entire life of the mortgage. This calculation is used to determine your allowed interest deduction for the points paid for home mortgage refinancing. You will only be allowed to make deductions for points for payments that you have made during that specific tax year. The rules regarding home mortgage refinancing can be showed with an example. Let’s say that you for instance paid $2,000 in points for your home mortgage refinancing and your contract stipulates that you will pay back your mortgage over 30 years after the home mortgage refinancing. This means that you will make 12 payments a year, for 30 years. You total amount of payments after home mortgage refinancing will be 360 and you will therefore be allowed to deduct $5.56 for each payment. For a 12 month long tax year you should deduct $66.72 for the points paid for home mortgage refinancing. If you contact the bank or creditor that offered you the home mortgage refinancing they will provide you with the necessary information.

Under certain circumstances you can however be allowed to deduct more than this amount directly. If this is your second home mortgage refinancing, the balance of points that you paid for your first home mortgage refinancing can under certain circumstances be fully deductible at pay off. Did you use parts of the money from your first or second home mortgage refinancing to pay for improvements on your home? It is quite common for house owners to use money from home mortgage refinancing when improving their homes and special tax rules have therefore been created in order to provide the home owner with a more fair tax treatment after home mortgage refinancing. If you meet a few other requirements, you will be allowed to deduct the points associated with the cost for home improvement during the same year as you paid the points for the home mortgage refinancing. Closing costs like appraisal fees and other types of non-interest fees is usually not deductible. You Adjusted Gross Income can also lower the amount of allowed deductions for your home mortgage refinancing.

Before you agree to an offered home mortgage refinance you should always calculate how it will affect your economy in the long run. A home mortgage refinance is not always beneficial, it can sometimes be better to keep your original mortgage and turn down the home mortgage refinance offer.