Refinancing is paying off a current loan and replacing it with a new one at a different—ideally lower—rate. Homeowners may decide to refinance in order to reduce the term and interest rate of their existing loan; to convert to another type of mortgage (adjustable-rate vs. fixed-rate), or to consolidate debt. There are several factors to consider when refinancing your mortgage. If you are looking to start the refi process call us now.
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A deduction is a subtraction you can claim on your federal taxes that reduces your tax burden. There are a number of tax deductions that you can take advantage of if you refinance a mortgage loan. You can deduct the full amount of interest you pay on your loan in the last year if you did a standard refinance on a primary or secondary residence. You can only deduct 100% of your interest if you take a cash-out refinance, particularly if you use the money for a capital home improvement. Otherwise, you can only deduct the percentage of interest you paid on your original loan balance.
You can also deduct your discount points and any closing costs you pay toward a refinance on an investment property. You must spread these costs over the total term of your refinance and can only deduct these expenses if you itemize your deductions.
If you refinance your current mortgage please note your credit score (officially known as the FICO score) can be affected. This is because you are adding a new loan to an existing one. Nevertheless, this effect is usually only temporary.
1. Pay Stubs – You will be required to show your recent salary stubs. If you are self-employed you must provide two recent tax return forms as well as profit or loss forms. If you have other income sources please provide 1099 forms.
2. Tax Returns and W-2s – Copies of your last W-2 statements and tax returns. Typically, lenders will ask for two years’ worth of information.
3. Credit Report – It is very useful to have your credit score checked if this information is required by our lenders and risk analysts.
4. Statements of Outstanding Debt – Details about your outstanding financial obligations. Account statements on all remaining debts, including your existing mortgage, home equity, lines of credit, car loans, and student loans.
Yes, Refinancing can actually help you save money especially if the original loan you obtained had excessively high-interest rates. In this case, refinancing makes financial sense since it lowers the interest rate on your loan and can help you shorten the payment schedule.
Another advantage of refinancing your mortgage is that you can obtain cash out to pay off existing credit card debts, student loans, or invest in a home improvement project.
Most lenders require that you get a home appraisal (valuation) before you refinance your mortgage. You may not need an appraisal to refinance your loan if you have an FHA loan, VA loan, or USDA loan. In some situations, you may be eligible for an appraisal waiver on a conventional loan as well. Consult with your loan advisor as to whether or not you are eligible for a property inspection waiver (PIW).
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