Is Re Financing Always Worthwhile Anyway

Is Re Financing Always Worthwhile Anyway

Is Re-Financing Always Worthwhile Anyway?
This is​ a​ very important question which all homeowners should ask themselves both at​ the start and towards the end of​ the process of​ re-financing .​
The answer to​ this question can spur the homeowner to​ investigate re-financing further or​ convince the homeowner to​ table the thoughts of​ re-financing for the moment and concentrate on other aspect of​ owning a​ home .​
Establish Financial Goals
This should be the first step in​ the process of​ determining whether or​ not re-financing is​ worthwhile .​
Without this step, a​ homeowner cannot accurate answer the question of​ the worth of​ re-financing because the homeowner may not fully understand his own financial goals .​
While financial goals may run the gamut from one extreme to​ another the most basic question to​ ask is​ whether the more significant goal is​ long term savings or​ increased monthly cash flow .​
This is​ important because re-financing can usually achieve these two goals .​
Do You Want to​ Save Money in​ the Long Run?
Homeowners who establish a​ goal of​ saving money in​ the long run should consider re-financing options such as​ lower interest rates or​ shorter loan terms .​
Both of​ these options can considerably lower the amount of​ interest the homeowner is​ paying on the loan .​
This is​ significant because paying less interest will result in​ a​ greater cost savings .​
Consider an​ example where a​ homeowner has an​ existing debt of​ $100,000, an​ interest rate of​ 6.25% and a​ loan term of​ 30 years .​
Just by reducing the loan term to​ 15 years the homeowner can significantly decrease the amount which is​ paid in​ interest during the course of​ the loan .​
However, this option will also result in​ an​ increase in​ the monthly payments made by the homeowner .​
Therefore this type of​ re-financing option may only be available to​ those who have enough cash flow to​ compensate for the increase in​ monthly payments .​

Do You Want to​ Increase Your Monthly Cash Flow?
Some homeowners may have a​ chosen goal of​ increasing their monthly cash flow .​
For these homeowners the overall cost savings may not be as​ important as​ having more money available to​ them each month .​
These homeowners might consider a​ re-financing option in​ which they are able to​ extend their loan terms .​
This means they will be repaying the existing debt over a​ longer period of​ time .​
The homeowner will pay more in​ interest in​ the long run but will achieve their goal of​ lower monthly payments and an​ increased cash flow .​
How Will Re-Financing Affect Tax Deductions?
This is​ another serious consideration for homeowners who are interested in​ investigating the possibility of​ re-financing .​
The interest paid on a​ home loan is​ often tax deductible .​
a​ homeowner who re-finances in​ a​ manner which results in​ less interest being paid annually may adversely affect their tax strategy .​
The implications of​ this type of​ chance can be amplified for homeowners who were previously just below a​ significant tax break line .​
a​ significant decrease in​ the amount of​ interest paid will mean a​ significant decrease in​ the deduction the homeowner is​ allowed to​ take .​
This reduced deduction can put the homeowner in​ an​ entirely different tax bracket and could end up costing the homeowner money in​ the long run .​
For this reason, homeowners who are considering re-financing should have a​ tax preparation professional determine the ramifications re-financing will have on their tax return before a​ decision is​ made.

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