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The Tax Impacts of Home Mortgage Refinancing: An Analysis and a Model

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  • Rich Fortin
  • Stuart Michelson

Abstract

This paper provides pertinent information for investors about refinancing their mortgages. It discusses the input variables and how to compute the breakeven number of months when deciding to refinance a mortgage. Interest rate tax effects that are normally ignored by investors when making their refinancing decision are incorporated. A number of scenarios are provided that vary the mortgage amount, term and interest rate. Depending on the term and interest rate, the breakeven varies from two to six years for a $200,000 mortgage and from two and a half years to ten years for a $100,000 mortgage. When considering the value of the lost interest deduction, the number of months required to breakeven increases by about 50%. An Excel model was developed to perform this analysis.

Suggested Citation

  • Rich Fortin & Stuart Michelson, 2005. "The Tax Impacts of Home Mortgage Refinancing: An Analysis and a Model," Journal of Real Estate Literature, Taylor & Francis Journals, vol. 13(2), pages 189-202, January.
    • Handle: RePEc:taf:rjelxx:v:13:y:2005:i:2:p:189-202
    DOI: 10.1080/10835547.2005.12090157
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