May 7, 2015 by Leave a comment

If you’re expecting a big check from Uncle Sam or your state government, you might start compiling a list of things to do with this free money. Going on a vacation and updating your wardrobe might top your list. However, money doesn’t fall into your lap every day, so it’s important to put this money to good use. This is an opportunity to get ahead. Some people pay off bills or build their emergency funds; but if you don’t have a lot of debt and if you already have three to six month’s of income in the bank for a rainy day, there are mortgage-related uses for a tax refund.

1. Make an extra mortgage payment.

Did you know that making an extra mortgage payment every year can shave years off your home loan term? Some people hate the idea of paying off a home over 30 years, but many don’t have any other option. If you’re getting a sizable tax refund, this might be an opportunity to make an extra principal payment on your mortgage. If you did this every year from the beginning of your mortgage term, you can decrease your mortgage term by as much as eight to seven years. Additionally, you’ll save a ton of money in interest.

2. Refinance and put the extra money toward closing costs

Refinancing is an excellent way to lower your mortgage rate and payment, but unfortunately, refinancing involves closing costs between two percent and five percent of the mortgage balance.

Closing costs prevent many from refinancing because they don’t have cash for these out-of-pocket expenses. Some lenders will wrap closing costs into the mortgage, but this increases the balance. Rather than let low rates pass you by, put your tax refund toward closing costs. Even if your refund isn’t enough to pay the entire amount, you can put some of the money toward these fees and wrap the remaining costs into the mortgage.

3. Make improvements and increase your property value

Home values can rise and fall over time, but little improvements you make to the property raises its value which can prevent an upside-down mortgage loan. Depending on how much you receive from the federal or state government, this might be the perfect time to remodel a bathroom, the kitchen or do other things to improve your home, such as landscaping, painting or updating the windows and doors. Spending just a few thousand dollars on improving your property can reap high returns.

4. Buy a new place

Perhaps your family has outgrown your current home, but you can’t move because you don’t have enough stash for a down payment. This is a dilemma many people face, but if you’re getting a sizable down payment, it’s like the government is giving you down payment funds. And if one year’s refund isn’t enough to cover the down payment, save this money and then add next year’s refund to your down payment fund. A friend took this approach and in two years she had the $6,000 needed to buy a condo.

Bottom Line

A tax refund can be a godsend if you’re dealing with financial problems, but it can also be a tremendous help if you’re looking to move, refinance or improvements your property. What you decide to do with this money is entirely up to you. However, if you want to put it to good use, put it toward your home.'

James Forte joined Total Mortgage in 2016, after 18 years of experience as a mortgage originator and manager. Email him at [email protected] #16443

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