The declining mortgage rates continue to present opportunities for homeowners to refinance their mortgage loans to lower the interest rate or cash out equity.
Refinancing your loan could provide many financial benefits including access to home equity, a lower monthly payment, shorter loan term, or total savings over the life of the loan. However, it is important to review the total costs of the loan relative to your current loan. Reasons to not refinance include higher upfront costs, extending the life of the loan, replacing a loan that has been significantly amortized, or a higher long-term cost if the loan balance is increased to access home equity.
It is also important to note the changes to the Mortgage Interest Deduction under the TCJA. The deduction for mortgage interest is limited to the interest paid on the loan secured by your home in which the proceeds are used to buy, build, or substantially improve the home. Interest deductibility may also be subject to certain loan balance limits. As a result, the portion used to pay down other debts such as college costs or student loans no longer provides a tax break at the Federal level. So, while refinancing to a lower rate may seem like a no-brainer, there are several factors that could increase the long-term costs and create negative tax implications.