A Tax Tip Article from The Tax Institute at H&R Block

What are some of the common scenarios today that cause American homeowners to think about refinancing?

Well, you may be…

• Looking for a lower interest rate to reduce your monthly payments; or,
• Wanting to restructure the length of time on your current home loan to save you thousands of dollars in interest; or maybe,
• Wanting to consolidate your outstanding debt into your home loan; or, perhaps
• Planning to use the equity you’ve built up in your home to renovate.

And these are all sound reasons to think about refinancing. But be forewarned: the process of refinancing can be lengthy and expensive. Similar to your first mortgage, refinancing will require you to complete an application; there will also be a credit check; a new survey and title search will need to be conducted; and an appraisal and inspection will need to be conducted.  Costs for such things as credit checks, appraisal fees, etc. are not deductible, however. Ouch.

A well-served rule of thumb is that your refinancing savings should pay for your initial costs to refinance within two years. And, if you’re planning to be in the house longer than two years, you may also want to consider paying points to lower your rate even further. You can deduct points paid to refinance your loan by amortizing them over the life of the loan, unless you are using the loan to make substantial improvements to your home. 

Where to start
Your first step should be to check your credit report if you don’t already know your credit score. Your credit score will impact the rate the lender will offer – no matter how many great “deals” you receive in the mail.

You may request one free copy per year of your credit report from the three credit reporting agencies from the official Web site. To ensure that you are visiting the legitimate site, type or paste https://www.annualcreditreport.com into your browser.

Or, you may contact each directly: TransUnion @ 800.680.7289, www.transunion.com;  Experian @ 888.397.3742, www.experian.com; and Equifax @ 800.525.6285, www.equifax.com.

Finding a lender
Most experts recommend that when you start your search for a lender, start shopping for a fixed-rate loan on a 15-year mortgage and one that allows you to “lock in” the current rate for a minimum of 30 days. Also, this is a great time to ask friends and family who have recently gone through refinancing for recommendations. And don’t forget the internet – let your fingers do the initial walking.

This Tax Tip Article is brought to you by The Tax Institute at H&R Block.

To view other helpful tax tip information, visit our H&R Block Community, Digits, at  www.digits.hrblock.com

As always...everyone's tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.

This Tax Tip Article is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties.