Financial Column

Refinancing 101–Using Your Home Equity and Lowering Your Rate and Term

Welcome back to part two of our three part series. This week we will be discussing options and different reasons why you might want to consider refinancing your existing mortgage.

In this week’s column we are adding educational videos from ALCOVA University. Please feel free to browse the other videos on our site and as well if you have any questions give us a call.

There are multitude of reasons to consider refinancing your mortgage other than to just lower your interest rate.

Consolidating debt

Often through life’s fluctuating events outside of your control, or from simple bad financial management habits, people rack up high interest rate unsecured debt. It could be credit card debt, personal loans, or unsecured debt consolidation. The problem is, these types of loans carry high interest rates and are not tax-deductible. Using your home’s equity to pay these higher interest loans off at closing can not only increase your overall monthly cash flow, but will give you supplementary tax savings since that interest now becomes tax deductible.

What is a Debt Consolidation Refinance Loan?


Home Improvements that increase your homes value

The most cost efficient way to invest funds into your home is by using your home’s equity.  Through a Cash-out refinance you can obtain funds to use as you wish.  This may be for any type of home improvement if it fits your budget.  It’s by far the most economical method of borrowing in terms of interest rate and moreover it’s tax deductible. Many mortgage companies such as ALCOVA, as well as many financial planners, will advocate using your home’s equity as a re-investment tool to further enhance your home’s value, rather than using funds that you may have accumulated in savings or investments.

For Educational Expenses

How many of you are paying for your child’s or your college tuition? As college costs continue to rise and mortgage interest rates stay low, borrowing from home equity to help pay for college is a popular option for many parents. We do however recommend a consult with us as well as a financial advisor. Typically, using your home’s equity on a cash out refinance has a lower rate than a student loan and you can immediately start using the tax write off from the mortgage interest.


As an emergency fund

If you’re trying to get your financial house in order, any number of experts will tell you the same thing which is to build up an emergency fund. What if you lose your job and can’t find another one for a year? What if you’re hit with an out-of-the-blue medical emergency? A million potential scenarios could drain your savings without warning, so it’s better to have at least eight to 12 months’ worth of living expenses squirrelled away. You need to know that you are going to be secure. It’s not just about the current state of the economy. What if you get sick? What if you’re hit by a car? What if something happens crazy in this world? With a cash out refinance you can invest these funds with a trusted financial advisor who will structure the funds in such a way that you still have access to them should the need ever arise.

What is Cash-Out Refinancing?

How about lowering your rate and payment?

Sounds like a great idea right? If you have not had someone look at refinancing your current mortgage for you in the last six months you should. Rates are still good. Have interest rates gone down from when you originally financed your home? Has your financial situation changed since you bought your home? Has your home value increased? Answering “yes” to any of these questions could mean it’s a good time to refinance your home.

A word about using your tax deductible home equity:

Currently a homeowner can deduct mortgage interest expense on Schedule A of an itemized tax return on loans up to $100,000 over and above acquisition indebtedness on a qualified residence with a limit up to $1,000,000.

Acquisition indebtedness simply means the total amount of the original loan(s) you took out when you bought the property. Your acquisition indebtedness does go down as you pay your mortgage down.

A qualified residence is defined as the principal residence of the taxpayer and one other residence belonging to the taxpayer, selected by the taxpayer and used by the taxpayer as a residence. The secondary residence can be a condo, cabin, motor home, camp trailer, or even a boat as long as it meets certain requirements such as having bathroom facilities.

As always you should seek the advice of a competent tax professional for full details on tax deductions.

Our Mission at ALCOVA Mortgage

“To simplify the mortgage process and build long-term trust with every client.”

ALCOVA Mortgage was founded in 2003, born out of a Passion to Serve!  Since inception we have helped over 45,000 borrowers reach their home financing goals.  Our Greenville based team has over 100 years of combined industry experience. We offer a broad product range that includes FHA, VA, USDA, Conventional, Manufactured Housing, Reverse Loans, Home Rehabilitation, and an In-House Construction Products.  

Because residential mortgage loans have our full concentration and we treat every customer like family, our service levels are outstanding! Better than what you may find at a bank, credit union, or other financial institution.  We make it easy to do business with us— All of our initial consultations are done free of charge with no obligation.  We have several tools available to make your home loan experience as convenient to your schedule and lifestyle as possible, regardless if you prefer to work in-person, over the phone, or through the internet.  

Whether you are looking to refinance an existing mortgage for a lower payment, utilize equity in your home for an important purpose, or purchase a new home—we want to be your GO TO Lender!  If you have a challenging situation, we welcome the opportunity to work with you.  We are passionate problem solvers and our goal is quite simple — to help you reach yours.

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