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.
Is Re Financing Always Worthwhile Anyway Is Re Financing Always Worthwhile Anyway Reviewed by Henda Yesti on August 22, 2018 Rating: 5

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