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Home Loans Refinance Options - Refinance Two Mortgages Into One
With two mortgages, it is tempting to consolidate the home loans into one refinanced mortgage. But, this isn?t always in your best interest. Depending on a number of factors, you may find that refinancing separately may qualify you for better rates.
Refinancing Options For Multiple Mortgages
You have three options when it comes to refinancing multiple mortgages. You can combine both loans into one, or you can refinance each account separately. The other option is to only refinance the higher rate mortgage.
The rates available to you will depend on your current credit score, market indexes, and your equity. So in some cases, you may find that keeping your low rate original loan while refinancing the higher rate second mortgage will save you the most money.
As odd as it may seem, refinancing your two mortgages separately can qualify them for lower rates than combining the two. This is especially true if you have little equity.
Requesting Quotes For Mortgage Refinance
To find out which option will save you the most money, you have to request quotes. Ask for APR quotes for each of the three options from several lenders. You may find that a mortgage broker site will speed this process up by allowing you to compare multiple bids side by side.
Remember too that points should be considered as a factor in your decision. Paying points for a loan you don?t plan to keep for several years may be more expensive than a higher interest loan.
Do the Math Before Refinancing Mortgage
To find the answer to which option is the best, you will have to do a little math. Fortunately, you can use an online mortgage calculator to quickly come up with the numbers.
With each loan quote, figure the difference in your mortgage payment if you refinanced. This number will show you which loan can give you the greatest savings. But, you also need to consider the cost of refinancing. So divide the amount you will save each month by the closing costs, which include points, to determine how soon you will break even.
While doing these calculations takes time, they will save you money and ensure you make the right choice.
Refinancing Mortgage Loan Costs - Are They Tax Deductible?
Not only are your mortgage interest payments tax deductible, but so are your refinancing costs. Points can be deducted over the life of your loan. However, there are some restrictions with this program.
Deducting Refinanced Points
When you originally take out a mortgage, you can deduct the points paid the year you take out the home loan. With refinancing, you have to deduct the points over the course of the loan.
So take the point amount paid and divide by the number of payments for the entire loan. A 30 year loan would have 360 payments. For each payment you make that year, you can deduct that amount off your taxes.
If you cash out part of your equity, you can also deduct the points in full that year in certain cases. For example, home improvements meet the IRS?s requirements.
When you pay off your refinanced mortgage early, you can deduct the remaining point amount from that year?s taxes.
Restrictions to Be Aware Of When Deducting Refinance Costs
As with any IRS program, there are restrictions with deducting refinancing costs. For example, depending on your income level, there are restrictions on how much you can deduct.
Closing costs, such as attorney fees, notary fees, and PMI, are also excluded. When the seller pays the points, they cannot be deducted either.
Paying Points on Refinance Isn?t Always Best
Points are a typical feature of today?s mortgages, but don?t plan on paying several points just for the tax write off.
Points are usually paid to further reduce interest rates on a mortgage. If you are planning to keep the loan for several years, this can save you thousands and may be worth paying the upfront cost. However, if you plan to move in a few years or refinance again, you won?t see a gain from paying the points.
The best thing to do is find the lowest costing loan first. Ask for APR quotes from several lenders to find the optimal rates and fees. That step alone can save you thousands. Next, decide if you can come out ahead by paying additional points. Remember that the tax deduction will only save you pennies on the dollar.
Refinancing Mortgage Loan Options - How to Refinance and Keep Your Terms
Refinancing can save you money, but the downside is that you have to restart amortization. Once again you are paying mostly interest at the beginning of your loan. But there are ways you can get around this, keeping your original pay off period and saving on interest charges.
Short-Term Refinance Loans
Lenders offer a variety of terms ? 30, 25, 20, or 15 years. By refinancing for a shorter term you can closely match your original pay off date. Unfortunately, lenders don?t fraction year terms ? such as 22 years and 4 months.
However, by choosing a shorter term, you may qualify for even lower rates. You can also pay off your loan sooner, further increasing your interest savings.
Self Increasing Your Payment On Refinance Loans
Another option is to refinance your mortgage for 30 years. Then make an additional principal payment each month to pay off your loan at the original date. You can use a mortgage calculator to determine this amount. You can also make one extra payment a year to reach the same results.
With this approach, you have control over your payments. For some this can be seen as a negative, since there isn?t the required payment. You can also pay off your loan earlier by increasing your principal payment even more.
Pre-pay ?Cash Out? Refinance
The third option is to take out the original loan amount. Then prepay the principal amount to what you currently were at with your original loan. That way you will pay off your loan on your original terms.
This option gives you more control over the pay off date. But, you may be charged a higher rate for cashing out part of your equity.
Selecting the Right Refinance Option
Each approach has its own advantages and disadvantages. Mostly it comes down to a matter of preference and what works for your budget. However, do ask for rate quotes to see the difference in interest costs. Not only will you have a better understanding of the numbers involved, but you will also find the best APR.
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