Refinancing your home is a smart way to save money and lower your monthly payments, but it’s important to understand what happens to your mortgage terms and taxes when you refinance. Depending on the loan terms you choose, refinancing may affect how much interest you pay each month, how long you have to pay off the loan, and even how much property tax you owe each year.
When you refinance, your lender pays off your existing mortgage and replaces it with a new one. Depending on the type of loan you choose, that could mean a lower interest rate or different loan term. For example, if you currently have a 30-year fixed-rate mortgage with a 6% interest rate and decide to refinance into a 15-year fixed-rate mortgage at 4%, your monthly payments will be higher but the overall cost of the loan will be lower because of the shorter term and lower interest rate.
Your taxes may also be affected when you refinance. Generally speaking, refinancing won’t affect how much property tax you owe in any given year. However, there are certain circumstances where refinancing could result in an increase in property taxes due to reassessment or changes in local ordinances.
It’s also important to note that when refinancing for debt consolidation or cash out purposes (e.g., to use equity in your home for home improvements), additional taxes may be due if there is a difference between the amount owed on the old mortgage and the amount owed on the new one. For example, if you have an existing $200,000 loan with $25,000 remaining balance that is being refinanced for $225,000 cash out purposes, then additional taxes may be due on that $25,000 difference.
To make sure that all of your financial obligations are taken care of during the refinancing process it’s best to consult with a qualified tax professional or accountant before signing any paperwork related to your new loan. They can help make sure that any potential tax liabilities are accounted for and that all relevant paperwork is filed correctly with local authorities.
Overall, refinancing can be an excellent way to save money over time by reducing monthly payments and potentially reducing overall interest costs if done correctly. Understanding what happens with mortgages and taxes when refinancing is essential so make sure to do your research before making any decisions about changing up your financing structure!