When interest rates are low, many homeowners look at refinancing their homes. Those who refinance at a lower interest rate benefit from lower mortgage payments as well as a lower amount paid over the life of the mortgage. But did you know refinancing could also bump up your tax return?
When you refinance your home, the majority of your initial monthly payments will be going toward interest on the loan. While it's no fun paying a big chunk of money in interest, all of that interest is tax deductible. The new tax law allows homeowners to deduct the full amount of interest on mortgage loans (including refinanced loans) up to $375,000 for individual filers and $750,000 for married couples filing jointly [source: IRS].
Of course, a lot of factors need to be considered when refinancing a home, including your new interest rate, how much you still owe on your house and its current market value.
Another option to remember is a home equity loan. The new tax law allows you to deduct the interest on a home equity loan as long as the money is being used to improve the house [source: IRS]. In the past, you could deduct interest paid on a home equity loan no matter what you planned to do with the money, but it's still a tax-wise way to cash in on the equity in your house.