This is a significant question that all homeowners can ask themselves at the beginning and end of the refinances process. The response to this question may either encourage the homeowner to pursue refinances further or persuade the homeowner to put re-financing on hold for the time being and focus on other aspects of homeownership.
Set Financial Objectives
This should be the first step in deciding whether or not re-financing is advantageous. Without this measure, a homeowner would be unable to provide an accurate response to the question of whether refinances is worthwhile because he or she does not fully comprehend his or her own financial objectives. Although financial targets can range from one extreme to the other. The most basic question to ask is whether long-term savings or improved monthly cash flow is the more important target. This is important since re-financing will normally accomplish each of these objectives.
If You Want To Make Long-term Financial Savings?
Refinancing strategies such as lower interest rates or shorter loan terms should be considered by homeowners who set a long-term target of saving money. Both of these solutions will significantly reduce the amount of interest paid on the loan by the homeowner. This is important because paying less interest means you’ll save more money.
Consider the case of a homeowner who has a $100,000 mortgage with a 6.25 percent interest rate and a 30-year loan period. By that the loan period to 15 years. The homeowner will save a considerable sum of money on interest over the life of the loan. This option, however, will result in a rise in the homeowner’s monthly payments. As a result, this form of re-financing option might be limited to those with sufficient cash flow to cover the increased monthly payments.
Are You Looking To Boost Your Monthly Cash Flow?
Any homeowners may have set a target for themselves to improve their monthly cash flow. The overall cost savings might not be as significant to these homeowners as making more money available per month. These homeowners may want to look at refinances, which allows them to extend their loan terms. This means they’ll take a longer time to pay off their current debt. In the long term, the homeowner will pay more in interest, but they will reach their target of lower monthly payments and more cash flow.
What Effect Would Refinancing Have On Tax Deductions?
This is another important factor to consider for homeowners who are considering refinancing their house. A home loan’s interest is often tax deductible. A homeowner’s tax policy can be harmed if they refinance in a way that results in less interest being charged annually. For homeowners who were previously only below a substantial tax break line. The effects of this form of chance can be compounded. A significant reduction in the amount of interest charged. Would result in a significant reduction in the amount of tax deduction available to the homeowner.
This reduced deduction will place the homeowner in a higher tax category, potentially costing the homeowner money in the long run. As a result, homeowners considering re-financing should consult a tax professional to assess. The impact re-financing would have on their tax return before making a decision.