How to Make the Most of Your Refinance

Many of you took advantage of the low-interest rates in 2020 by refinancing their home. Interest rates dropped down to below 3.02%, which is the lowest they’ve been since 2016. There are a variety of goals for refinancing, including:

  • accessing cash for home improvements
  • lower lifetime paid interest
  • reduced monthly payments
  • paying your mortgage off faster

However, the financial benefits don’t stop there. As you begin to gather your tax documents for 2020 don’t forget that you can use your settlement sheet (also called your ALTA statement) to save on your taxes.

What Can You Deduct When You Refinance Your Home?

Your accountant will take care of the details but be sure to let them know that you refinanced your home in 2020. With interest rates still low, you can refinance in 2021 for the same tax deductions for next year. Here’s what you can deduct:

  • Closing costs such as real estate taxes and the interest paid last year on a primary or secondary residence. Interest deductions may vary depending on your adjusted gross income.
  • If you didn’t cash-out, you can deduct the percentage of interest paid on the original loan balance.
  • All discount points and closing costs paid toward refinancing can be spread out over the term of the loan as itemized deductions.

Appraisal costs, titles, and other fees are not deductible, but the expenses of each should be factored in before you make the decision to refinance.

Can You Still Refinance Your Home in 2021?

As of January 2021, interest rates are still low, but low rates aren’t of benefit to every homeowner. Talk it over with your financial advisor to crunch the numbers, because you want to do more than breakeven. Consider factors such as:

  • How long you plan on living in your home, which may have changed since the pandemic?
  • How many years you have left on your mortgage?
  • Your current interest rate?
  • If refinancing can shorten the term of your loan?
  • Your refinance goals?
  • The short and long-term financial benefits?
  • What costs can and can’t be deducted?

Tax Benefits for New Homeowners?

Low interest rates make NOW an attractive time to buy a new home. As a new homeowner, you can deduct your interest and real estate taxes by itemizing your deductions. Your mortgage closing costs and other settlement costs aren’t deductible right away but provide a tax offset when you sell your home.

Tax offsets include:

  • costs such as your title search fees
  • title fees,
  • contract preparation fees
  • deed preparation fees,
  • recording fees,
  • owner’s title insurance,
  • legal fees, and more.

You may not sell for a while, so be sure to keep your original purchase documents—as well as a digital copy for safekeeping.

If you are ready to buy (or sell, or both!) a home in Northern Virginia or the DC area, I invite you to reach out to me today. I can help you find your first home, upgrade your home, downsize, or find the perfect investment property. Let’s get started!

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I'm Nancy and I love helping homeowners who have outgrown their current home and are ready to buy a new home but don’t know where to start. Let me know how I can help you make your real estate dreams come true. 

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