A Message From Our General Secretary Treasurer

 REFINANCING YOUR MORTGAGE?

THE IAFF FINANCIAL CORP. CAN HELP

The home mortgage industry has gotten a lot of negative publicity over the last several months due, in part, to the role that “subprime” mortgages played in sparking the economic downturn.  However, there is also a brighter side to this story which could provide greater spendable income for many people. 

Along with the economic downturn has come a decline in interest rates, including home mortgage interest rates.  This has prompted many people to refinance the existing mortgage on their home.  Refinancing can provide a number of financial benefits.  It can lower your current monthly mortgage payments; it can shorten the time it takes to own your home free and clear of any debt; or it can provide homeowners with a source of cash for things like home improvements, paying for children’s college expenses or reducing other debt (e.g., credit card debt). 

While mortgage interest rates have crept up a bit in recent weeks, they are still quite low by historical standards.  If you currently have a mortgage that carries an interest rate of 6% or more, refinancing may be a smart strategy for you.  Of course, consult a reputable financial advisor, however, to make sure that refinancing will be financially advantageous for you and that you maximize the tax benefits that go along with refinancing. 

When refinancing, the simplest way to continue receiving the tax benefits associated with home mortgages is through a straight replacement loan.  For example, assume you currently have a mortgage with a $200,000 balance and a 6.25% interest rate. Refinancing that balance with a 5% mortgage will allow you to deduct all of the interest payments (and reduce your overall monthly payment). 

However, the situation becomes a little more complicated if when refinancing you take on a larger mortgage than what you currently own on your home.  Assume that you obtain a new mortgage for $250,000, and of that amount, $200,000 will go to pay off the old mortgage, $20,000 will be used to make improvements to your house and $30,000 will be used to pay for a child’s college tuition. 

Under the U.S. tax code, the interest on $220,000—$200,000 to pay off the old mortgage and $20,000 for home improvements—is tax deductible.  The $30,000 for college tuition is considered “home equity debt,” which is tax deductible to the extent that a taxpayer has no more than $100,000 of home equity debt outstanding.  This can become a factor if you have a previously existing balance on a home equity line of credit.  Also, for interest on home equity debt to be fully tax deductible, the total mortgage debt on the house—including home equity debt—cannot be more than the value of the house. 

“Points” (fees paid up-front that can reduce the mortgage interest rate) is another factor to consider when refinancing a mortgage. The amount a homeowner pays in points as part of the mortgage process is generally tax deductible over the life of the mortgage.  When refinancing in the future, the value of points from an existing mortgage that were not yet deducted on prior year tax returns can then be fully deducted in the year the new mortgage is obtained. 

However, as is often the case, there is an exception to this rule.  If you refinance with the same lender that gave you your prior mortgage, the “old” points are not immediately deductible.  The not-yet-deducted points must be combined with the “new” points and deducted over the life of the new mortgage. 

These are just some of the issues that arise when refinancing an existing mortgage.  A good place to start when thinking about refinancing is the website of the IAFF Financial Corporation (www.iaff-fc.com; on the home page, click on “home mortgage program”).   There you’ll find a wealth of information and easy-to-use financial tools to help you decide if refinancing makes sense for you. 

At the same time, the IAFF Financial Corp., in conjunction with Nationwide Advantage Mortgage Corp. (NAMC), has made available to IAFF members and their families a home mortgage and refinancing program that is easy to use, extremely competitive from a cost standpoint and stress-free. 

For instance, IAFF members are not charged an origination or broker fee from NAMC on home mortgages, and the processing fees (e.g., commitment fee and fees for home appraisal and title search) are extremely reasonable. 

The website makes applying for an original mortgage or refinancing fast and efficient, as it provides members with a streamlined application process, an ability to review and compare all mortgage products that a member is eligible for, a streamlined appraisal process and quick decisions on applications (perhaps in just minutes rather than hours or days).

Whether refinancing your current mortgage is right for you depends on a number of factors.  The IAFF Financial Corporation website gives IAFF members the information and financial tools they need to make an informed decision, as well as products that are competitively priced in the marketplace.