Add them to the finance charge on the new loan and consider that they increase the interest rate on the new loan accordingly. Additionally, if you purchased credit-related insurance on the old loan, that insurance will be canceled and you will receive less than a full rebate. The creditor may then try to sell a new insurance policy with the new loan. Some lenders are now offering to provide refinancing to consumers in amounts far more than their homes are worth. These loans can be quite large and very expensive.
Some lenders provide misleading information about the tax consequences of such loans.
They claim that you will be able to fully deduct interest charges in a way that the IRS may not allow. Mortgage lenders willing to lend you more than your home is worth typically charge rates about 5 percent higher than more traditional loans. In addition, your home will be at risk of foreclosure if you fail to pay the new higher loan amount. Finally, remember that taking a loan of this type will prevent you from building up equity in the home for a long time. The loan will make it very difficult to sell or refinance until you have paid the loan down below your property's market value.