Today TaxMama hears from Al Tompkins at Poynter.org . Al says, “I generally don’t get too excited about little movements in interest or mortgage rates, but they are moving into record-low territory. It could truly be worth considering refinancing if you are going to stay in your home awhile.”
Al is right. When rates are as low as 4.72%, with 15-year rates down at 4.1%, it’s time to start looking at your mortgage.
Do some shopping around to see if you can cut your current payment.
Last time they were this low, we refinanced our mortgage. We rolled about $30,000 of other debt into the new mortgage – and took out a new loan for 10 years at 4.375%. By making the same payments we made on the old loan – we are paying that 10 year loan off in under 7 years. After all, we are paying much less interest so the money reduces the principal more quickly.
Here are some guidelines and warnings:
1) When you refinance, if you consolidate your debt into your new loan, your interest deduction may be limited. You may only deduct interest on up to $100,000 of mortgage debt above the original loan (plus costs of improvements and remodels).
2) Do NOT get a variable rate loan, no matter how tempting the initial rate. The whole purpose of this refinance is to lock in a low, fixed rate.
3) If you can, get a 30 or 40 year loan with no prepayment penalty. Pay more than the minimum payment when you can afford to. When you can’t, your monthly obligation will be lower.
So, the minimum payment is easier to afford in the lean months or years.
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4) Shop for loans with no costs or fees if possible.
5) Do NOT prepay any costs. Those are rip-offs and there might not even be a loan forthcoming at the end. Keep shopping.
6) Start your loan hunt with your own lender. They may have a program for you with less red tape for existing customers who has proven to meet their obligation consistently.
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7) Do NOT cash out all your equity. That’s why so many people are in trouble today. Don’t be a pig. But if you anticipate needing some money to cover expenses (or even loan payments) within the coming year, cash out enough to cover that – and put the money into savings until you need it.
Be smart and money wise. Take advantage of opportunities when they come.
And remember, you can find answers to all kinds of questions about mortgage interest and other tax issues, free. Where? Where else? At www.TaxMama.com.
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