The Refinance Process

• Refinancing your home loan isn't free -- you can usually expect to pay from 3 percent to 6 percent of your mortgage's outstanding balance in origination and third-party closing costs -- but it can save you a significant amount of money each month. For instance, if you refinance your $300,000 30-year fixed-rate loan from one with an interest rate of 6.75 percent to one with a rate of 4.75 percent, you'll shave about $380 from your monthly mortgage payment.
  
  

No Additional Property Taxes

• You won't have to worry about paying higher or additional property taxes, either. Your township assessor's office determines how much you'll pay for property taxes each year when it determines the current assessed value of your residence. If this value goes up, you'll usually pay higher property taxes.
  
  

What the Assessor Considers

• The township assessor looks at whether home values are falling or rising in your neighborhood when determining your home's assessed value. The assessor will also consider whether you made any significant improvements to your home, such as a new master bedroom or a newly renovated kitchen. Finally, the assessor will look at outside influences -- a new supermarket locating near your neighborhood could boost home values -- when determining your home's assessed value. Whether you refinance your home has no bearing on these calculations.
  
  

The Refinance Appraisal

• Before your lender approves your refinance request, it will order an appraisal of your home. A private real estate appraiser will tour your home's inside and outside, and consider comparable home sales in your community, in order to tell your lender how much your home is now worth. The township assessor, though, does not take this appraisal into account when determining your home's assessed valuation, so this appraisal will not cause your property taxes to suddenly rise.
  
  

Cash-Out Refinance

• In further good news, you won't even have to pay taxes when you close a cash-out refinance. Under this type of refinance, you receive an actual cash distribution. As an example, you refinance a $100,000 mortgage and receive $25,000 extra in cash to pay for a child's college education, pay down credit card debt or pay for a child's wedding. Your lender treats this as you taking out a $125,000 mortgage loan. So does the federal government. Because you are paying back this $125,000 with interest, the $25,000 you received is not counted by the IRS as income. Therefore, you do not have to pay taxes on that $25,000 in cash that you received.