Refinancing - Is there a tax effect?

If you would like to speak with a trained mortgage specialist about your situation, feel free to contact us at anytime.

How does refinancing affect your tax situation?

With a lower interest rate on your home mortgage loan, you will have less interest to deduct on your income tax return. That may increase your tax payments and decrease the total savings you would obtain from a new, lower-interest mortgage.

You should be aware of an IRS ruling with respect to points paid solely for refinancing your home mortgage. IRS regulations require that interest paid up front for refinancing must be deducted over the entire life of the loan -- not in the year you refinance (unless the loan is for home improvements). This means that if you paid a certain number of points, you would have to spread the tax deduction for those points over the life of the loan. But if the refinancing is for home improvements -- or a portion of the loan is for this purpose -- you may be able to deduct these points -- or a percentage of the points -- under certain circumstances. You will need to check with the IRS regarding the current rulings on refinancing, particularly if you are using the new loan to make home improvements.