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

Authors: Rich Fortin and Stuart Michelson

Start Page: 189
End Page: 202
Volume: 13
Issue Number: 2
Year: 2005
Publication: Journal of Real Estate Literature

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.