If you’re a homeowner, you’ve probably been receiving mailers encouraging you to refinance your property. For once, your junk mail is giving you good advice. In my 45 years in real estate, I have never seen such low interest rates. If you have not refinanced recently, I highly recommend calling your Realtor for a referral to a local lender to see what they can do for you.
I just refinanced my personal residence through our local bank and was able to get an interest rate of 2.5 percent on a 30-year, fixed-rate mortgage with no points. This is incredibly cheap. In my case and in most cases, the tax deduction will save about a third of the cost of the monthly interest, , making it an even better deal. This may sound crazy, but if you have equity in your home and you want to borrow against it, you can refinance your home and pull cash out at a lower rate than borrowing through a credit card’s introductory offer of 0 percent with a 3 percent advance fee.
If you have an existing mortgage with a low rate and you’re wondering whether it makes sense to refinance, let’s do some math to find out. Although I cannot legally quote current rates, I can use examples that are likely to be in the ballpark.
The median house price in Ukiah is about $400,000, so let’s imagine you need to refinance a $300,000 loan. For a loan of this size and type, you’re probably looking at about $5,000 in closing costs. So, if your existing mortgage is at 3.5 percent and your new mortgage is at 2.5 percent, how does it pencil out? At 3.5 percent, you’re paying $1,347 per month. At 2.5 percent, you’re paying $1,185 per month. It’ll take about two years to recoup the $5,000 closing costs, so if you stay in your home for more than two years and you have a 3.5 percent or higher 30-year, fixed-rate mortgage, It’s worth calling your local lender today.
Consumer interest rates will never drop to zero, so we’re probably about as close as we’ll ever come. As I polish my crystal ball, I see that a world hit by a pandemic may have an economic downturn, and that means rates are probably going to remain low in the near future. However, my crystal ball malfunctions fairly frequently, so if you want to refinance, I wouldn’t wait if I were you.
As a side note, if you are a sole proprietor business owner, you can turn the interest on your home loan into a tax-deductible business expense. The caveat is that you need to be able to own your home free and clear first. Years ago, I borrowed against my home and deposited the cash in an investment account. I then used those funds exclusively for business purposes. As long as you do this and keep good records along the way, the interest you pay is tax-deductible. When it comes to the most beneficial tax deductions, business deductions are the most beneficial, followed by investment deductions, then personal deductions.
Regardless of whether you can connect the re-fi of your home to your business, it is still worthwhile to investigate the potential savings.
If you have questions about property management or real estate, please contact me at email@example.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery. Dick Selzer is a real estate broker who has been in the business for more than 45 years.