I know we can write off mortgage interest, and that this reduces my taxable income.
That statement is not always true when dealing with this on your primary residence, 2nd home, vacation home or any other non-business, personal use real estate. Mortgage interest on personal use property is a SCH A itemized deduction. Until the total of all of your itemized deductions (which can include more than just mortgage interest) exceeds your standard deduction, the itemized deductions make absolutely no difference to your tax liability.
Additionally, as of 2018 there are limits on your itemized deductions. You can deduct the interest on a mortgage balance up to $750,000. Interest paid on any amount over that is just flat out not deductible at all. There's also a limit of $10,000 on SALT (State and Local Taxes).
So if you're filing a joint return your standard deduction for 2021 will be $$25,100 (unless congress changes it before the 2021 tax filing season starts.) If the total of all of your itemized deductions does not exceed that standard deduction, then itemizing won't help you a bit. So refinancing for the primary purpose of lowering your taxes is not really a good reason to refi.
Reasons I myself refi in order of importance to me are:
1) Lower the interest rate by an absolute minimum of 2%. If a refi will not lower the interest rate by 2% or more, then it's generally not worth while financially, to bother with a refi. (Not true for all. It depends on the outstanding balance of the original loan, if it's worth it to me or not.)
2) Lower the total monthly payment by "at least" 15%.
3) Lower the amount of interest I pay each month (thus increasing the amount of each payment applied to the loan so it gets paid off sooner.)
4) Change the term of the loan from a 30 year loan (original loan) to a 15 year loan (New, refi'd loan) which also gets me a lower interest rate.
Overall, I don't have any problems or issues with paying my share of taxes - but I only want to pay those taxes on the money I get to keep. So the sooner I can pay off a mortgage, the sooner I get to keep that money I'm paying taxes on anyway. (Basically, that's the principle portion of each payment that you pay taxes on.)
I recently refi'd my primary residence from a 5.75% 30 year loan, to a 3.0% 15 year loan which lowered my payments by around $300/month. So my payments went from roughly $1300 a month to around $975 a month. A $325 a month savings, and a whopping 25% drop in the total payment amount due each month. Additionally, and even with a 15 year refi loan, the amount of each payment that goes towards paying down the principle actually increased by about $32 a month. Compared to the old original loan, that's almost the equivalent of making an extra payment towards the principle every year.
Note that this refi has had absolutely no impact on my tax liability. But it did put an extra $325 in "my" pocket every month, instead of the bank taking it.
