By Admin, Monday, August 6th, 2012
Is Another Loan The Real Answer?
With the undeniable prevalence of this approach…re-financing…This is a very important question all homeowners should ask themselves both at the start and towards the end of the process of re-financing!
Depending upon your particular circumstances..and the finance details…the answer to this question will either spur you to investigate re-financing further…Or… convince the homeowner to table the thoughts of re-financing for the moment and concentrate on other aspects 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, (knowing your own goals) a homeowner cannot accurately know the worth of re-financing. While financial goals may go 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 both of these goals!
Do You Want to Save Money in the Long Run?
If the long run is your aim, you should consider re-financing options of lower interest rates and/or shorter loan terms. Both of these options can considerably lower the amount of interest the homeowner is paying on the loan. Of course, 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 $250,000, an interest rate of 7.25% and a loan term of 30 years. 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…Actually, over $164,000!
However, this option means an increase in the monthly payments made by the homeowner. So, this type of re-financing option may only be available to those who have the cash flow to allow 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 cash 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 increased cash flow.
How Will Re-Financing Affect Tax Deductions?
Tax is a serious consideration for homeowners who are interested in investigating the possibility of re-financing!
The interest paid on a home loan, in certain circumstances (particularly when the loan or part thereof is for investment purposes), can be tax deductible. In these circumstances, a re-financed loan may result in less interest being paid annually…And that may adversely affect their tax strategy.
Perhaps the change in loan interest may lower the amount of deductions homeowners are entitled to, which may in fact reduce their tax refund? Overall this may not be the worst outcome..but nevertheless, this should be considered. Homeowners and particularly investors who are considering re-financing should have a tax preparation professional determine the ramifications of this strategy!
If you’re looking to re-finance your loans..you should get some guidance and advice first. So, don’t hesitate to call for an obligation and totally confidential discussion- we understand ..and we can help!
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