Weighing the Pros and Cons of Refinancing in 2012

If you’re like most Americans, you consider your home to be your biggest financial asset. New Federal plans to revive the housing market and let borrowers refinance their homes have both support and criticism, but keeping an eye on these future developments can help you uncover options for increasing your tax savings. To help you sort through benefits and potential drawbacks of refinancing, keep in touch with your CPA about your personal statements, tax and return preparations and discuss timely refinance opportunities.  Here are some helpful things to keep in mind and discuss with your CPA throughout the year as changes unfold and new initiatives are presented this year.


Is Federal Help on the Way for the Housing Market?


If you owe more than your home is worth you may not have been able to qualify to take advantage of the mortgage rates as lower interest rates continue to be available. If refinancing hasn’t been in the cards for you, things are looking up for the possibility to do so this year.  New plans are under development for the Federal Housing Administration to guarantee loans of mortgages that aren’t backed by federal entities. This would enable borrowers who owe more than their home is worth to refinance. With these new possibilities unfolding it’s a great time to weigh the pros and cons of the costs of refinancing and calculate costs and savings.


Does it make Sense to Refinance?

Lenders’ charges for transacting new loans rack up points; one point equals 1% of the mortgage amount. The more points you pay, the more tax deductions you can receive. The remaining points on your old mortgage become completely deductible when you refinance, an easy deduction to miss. To make sure you don’t miss similar deductions, here are some questions to ask yourself and bring to the attention of your accountant:
-How long will you be in your home? Is this home your principal residence?
-If the home is not your principal residence what tax rules apply to refinancing?
-Do you have any other refinance related expenditures other than lender’s fees?
-How are the tax deductions on your interest rates impacted?
-What is the deductible amount on your settlement statement?
-How is tax deductibility affected when your income reaches a certain level?
-Will non-deductible expenditures impact the tax basis of the home?
For more information about tax credits or general tax help with preparing your refund visit the IRS website or schedule an appointment with one of our certified public accountants by calling 815-459-4300.