Tax Concerns

When you're refinancing just the balance of your mortgage, interest on the entire amount is tax-deductible. If you borrow additional money, the interest on up to $100,000 extra is deductible as home-equity debt. Unlike points for the original mortgage, points for refinancing must be deducted over the life of the loan, whether you pay in cash or add them to the loan, unless you use the funds for improvements to your home. If you use all additional funds from the refinancing for home improvements, you can deduct all interest payments on the loan and the full amount of the points related to the improvement.

You can keep money in your pocket by folding the closing costs into the loan. This also has the effect of adding otherwise nondeductible charges, such as an appraisal fee, to the amount on which you pay deductible interest.

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