Kelly J. Bullis: To refinance your home or not

Have you been getting pesky junk mail from your current mortgage holder suggesting you consider refinancing your mortgage to a lower rate? I get them all the time. Some time back in history, my mortgage got sold to “Mr. Cooper” and now “Mr. Cooper” just won’t leave me alone! Every time I throw away the Mr. Cooper suggestion, I have to revisit my reason for not refinancing. You see, it is not always a good idea to refinance your loan.

Let me give you a couple of things to think about. First, if your current mortgage has been in place for five years or longer, refinancing a 30-year mortgage resets the time it will take before the mortgage is paid off. (You could choose to make your new loan amortize over 15 years instead of 30, but that usually causes your monthly mortgage payment to increase.) Soooo, if you plan on moving out in the next five years, it might be beneficial to refinance, but if you consider your home to be your “pre-plot lot” (the last piece of real estate you will occupy before your permanent residence in a graveyard), then you will be adding those additional years’ payments onto the total cost of your mortgage, as well as putting off the day of becoming mortgage free. Example: If you add six more years of paying $1,500 a month mortgage payment, you will pay a total of $108,000 more for that mortgage. If the refinance saves you $300 a month, your total savings over the 30 years would come to $108,000. In this particular example, it is about a wash.

Second, there are costs associated with refinancing. Points, application fees, loan origination fees, additional insurance, appraisal fees, inspection fees, recording and survey fees, title insurance, credit reports, etc. Now, once again, if your current home is your “pre-plot lot,” then amortizing those costs over the life of the loan may reduce the impact in the long run, but if you plan on selling your home in five years or less, the savings in monthly payments might not add up to that much when you sell the house. Example: Total refinance costs come to $3,500. Monthly savings is $300. You would need to hold onto the house for at least one year to break even. In this example, if you live in the house for three more years, the savings will add and might want to move forward with a refinance.

Third, tax savings. It used to be that most folks who had mortgages got a tax benefit. Now, with the Trump tax law changes a couple of years ago, most folks do not itemize because their standard deduction is way larger than actual itemized deductions. If you were just barely able to scratch up enough other itemized deductions, added to your mortgage, to have larger actual itemized deductions than the standard deduction or you are already in the standard deduction category, lowering your mortgage interest might end up having no impact on your taxes. But, if your actual itemized deductions are much higher than the standard deduction, the reduction in mortgage interest expense will drop your itemized deduction and increase the amount of tax you pay, nullifying some or all of the ”savings” you got from refinancing.

Have you heard? Job 34:4 says, “Let us choose justice for ourselves; Let us know among ourselves what is good.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.