You can claim this subtraction on your federal taxes to reduce your tax burden. If you wish to refinance a mortgage loan, there are a number of ways you can deduct:

1) If you take a standard cash-out to refinance on a primary or secondary residence, you can deduct 100% of your interest for the last year, especially if the money was used for a capital home improvement or permanent structural change. For any other case, the deduction only applies to the percentage of interest on the original loan.


2) If you take a refinance on investment property, you can deduct the discount points or any closing costs. These must be extended throughout the total refinance term will only be subtracted if the deductions have been itemized.

You can also deduct your discount points and any closing costs you pay toward a refinance on an investment property. You must spread these costs over the total term of your refinance and can only deduct these expenses if you itemize your deductions.

Refinancing your current mortgage can have an effect on your credit score, aka FICO score. The reason is that you are adding a new loan to an already existing one. However, this effect is usually short-term.

1. Pay Stubs: You will need to provide your recent payslips or paycheck stubs. In case you are self-employed, you will need to submit two recent tax return forms and profit or loss statements. For any other alternative income source, you must also provide 1099 forms.

2. Tax Returns and W-2s: Lenders usually ask for the W-2 statements and tax returns during the last two years.

3. Credit Report: This is information that lenders and risk analysts typically ask for. Therefore, it is useful if you have your credit score checked.

4. Statements of Outstanding Debt: Account statements on remaining debt can include current mortgage, home equity, lines of credit, as well as car loans or student loans.

5. Statement of Assets: Details on your assets, properties, or savings will also be required. Nonetheless, if the total of assets is below $200,000, you will not be eligible.

Firstly, it can help you save money. This becomes more noticeable in situations where the original loan has high-interest rates. Refinancing will lower your loan's interest rate as well as shorten the payment term.

Secondly, you will be able to obtain cash out and pay off remaining debts on credit cards, cars, or student loans, as well as invest in those home renovations you've been waiting for.
Another advantage of refinancing your mortgage is that you can obtain cash out to pay off existing credit card debts, student loans, or invest in a home improvement project.

For most lenders, you will need to perform a home appraisal/valuation. However, the FHA Loan, VA Loan, or USDA Loan are usually exempt from home appraisals. Moreover, we strongly recommend that you ask your loan advisor, as there are other situations in which you may also be exempt and be eligible for a property inspection waiver (PIW).