For many homeowners the overall goals of re-financing are often paying less in
interest overall and reducing monthly payments. When a homeowner is able to
obtain a lower interest rate, there is usually the opportunity to re-finance the
mortgage to capitalize on the lower interest rate. However, a lower interest
rate does not automatically translate to a savings. The homeowner must carefully
consider the amount of money they will be savings over the course of the loan in
relation to the amount of money they will be spending to re-finance the
mortgage. When the closing costs associated with re-financing are larger than
the savings, re-financing may not be warranted. Re-financing can also have
financial ramifications associated with tax options.
Paying Less Interest Equals Less of a Deduction
In most locations, homeowners are permitted to deduct the amount of taxes they
pay on their mortgage when filing their tax forms. This is usually quite a
substantial deduction for homeowners who owned the home for the entire tax year.
Those who re-finance their mortgage will typically be paying less money each
year in taxes on the mortgage. While this is great in the long run, it can
adversely affect the homeowner’s tax return.
Consider a situation where a homeowner is located just below a major tax bracket
which would be quite costly for the homeowner. As all ready discussed,
re-financing may result in the homeowner paying less money in taxes each year.
This means the taxpayer will be able to make a smaller deduction this year now
fall above the tax bracket they previously fell below. When this happens the
homeowner may find themselves paying significantly more in taxes.
Consult a Tax Preparation Specialist
Determining the exact ramifications of paying less interest on a home mortgage
on a tax return can be a rather tricky process. There are a number of difficult
equations involved which can make the apt to make mistakes while trying to
determine the consequences of paying less in taxes on the mortgage. For this
reason, the homeowner should consult a tax preparation specialist when
determining whether or not re-financing is worthwhile because the tax specialist
can provide information regarding the impact of paying less in interest.
In selecting a tax preparation specialist, the homeowner should seek out
opinions from friends and family members if the homeowner does not employ a
specialist to prepare their own taxes. This can be helpful because trusted
friends and family members are only likely to recommend professionals they feel
were knowledgeable, trustworthy and caring. A tax preparation specialists should
have all of these qualities but should also be well versed in the area of tax
preparation. This will enable the tax preparation specialist to make all of the
right decisions when considering the needs of the homeowner.
Online Calculators
For homeowners who do not know a tax preparation specialist or for homeowners
who are not capable of afford the consulting help of these individuals, there
are online calculators which homeowners might find very useful. These
calculators are readily available throughout the Internet and can be used to
determine the tax ramifications to re-financing. These calculators ask the user
to input specific criteria then returns results regarding the amount the
homeowner will pay in taxes during the year if he refinances. Additionally the
homeowner can run these equations several times to consider a number of
different scenarios.