When rates fall steadily, refinancing may make sense
even if you have done so once already. Robert and Michele
Swartz refinanced twice within three months in 1998.
In October, they trimmed the rate on their 30-year fixed
mortgage by a full point -- from 9.13% to 8.13% -- for
a monthly savings of $63. Plus, because home prices
in their area had boosted their home equity, they were
able to stop paying private mortgage insurance that
cost them $120 a month.
To exploit continued decline in rates, the Barbos refinanced
again in December. Their new 30-year fixed mortgage
is at 7.375%, lopping another $55 off their monthly
bill. Since the couple had chosen a no cost refinancing
each time, their total out of pocket expenses came to
just $400 in appraisal fees. So by the time you read
this, they will already have recouped their up front
costs. "Now we can use the savings to build up
a cash emergency fund," says Bob.
If you are considering a second refinancing, don't overlook
this potential tax write off: When you pay points to
refinance, you must deduct the amount over the life
of the loan, usually 30 years. But when you refinance
a second time, all of the points that have not yet been
deducted from the first refinancing can be written off
in a lump sum. Say you refinanced to a 30-year mortgage
in 1993 and paid $3,000 in points. By now, you would
have written off roughly $500. If you refinance again
this year, you could deduct the remaining $2,500 on
your 1998 tax return. For a homeowner in the 28% tax
bracket, that works out to a savings of $700 -- enough
to offset some or all of your costs this time around.