Tax deductions for Refinancing

The major benefit that any mortgage loan will give you as a homeowner is the advantage of tax deductions. Be it a primary mortgage, a second mortgage or a mortgage that you have refinanced, the tax deductions are yours for the taking! As a homeowner, you get three main kinds of tax deductions with your mortgage:

i)                    Tax deductible mortgage interest payments

ii)                  Property Taxes

iii)                Points paid on mortgage refinance

These three categories are discussed in detail below.

Tax deductible Mortgage Interest

In most cases, the interest payments on any mortgage are completely tax deductible. The only exceptions occur in cases wherein homeowners want to tap into their home equity to fund other financial needs like college education etc. In these refinancing cases, there is a limit to the interest payments which will be tax deductible i.e., interest on a maximum equity debt of $100,000.

Let’s illustrate the above limitation with an example. Homeowner XYZ had an original mortgage of $125,000. He refinances his mortgage for $300,000. The additional $175,000 is used for buying new cars, vacations and other such discretionary spending. In such a case, the entire interest related to the original $125,000 of the primary mortgage will of course be tax-deductible, and so will $100,000 of the refinanced equity debt. However, there will be no tax deductions on the interest payment of the remaining $75,000 which has been refinanced.

Property Taxes

In the year property taxes are paid to the collector of property tax, they are tax deductible. Future real estate taxes cannot be immediately deducted at the time of mortgage, but are deductible in the same financial year that the property tax becomes liable for payment.

Points Paid on refinance mortgage

Usually the points paid on a mortgage –primary or refinanced, are proportionately deducted over the entire tenure of the loan. However, if the refinance is being used for funding home improvements, all the points might be fully deductible in the first year itself. Your tax advisor will be better able to guide you regarding whether you meet the requirements for such a deduction.

So, consult a qualified tax advisor and discuss the specifics of the deductions that you can avail!

Visit www.myloanexpert.com/refinance-mortgage.html to get started.

Reduce the Term with Mortgage Refinance  Generally, all home owners go for a conventional fixed rate 30-year mortgage, especially those who purchase their first one. If you are one of this vast majority, you too must have opted for the longest payout schedule possible, in order to take advantage of lower monthly payments. However, if you are in the process of buying a home, you need to look at the other option of shorter loans, because they can represent huge savings over the life of a mortgage. Let us get down to the brass tacks. The fact of the matter is that bulk of the money you spend for your monthly mortgage payment is dedicated to paying interest. A house that sells for $200,000 today may wind up costing more than twice that price, once all the interest payments are calculated during the course of three decades. If you decide to shorten the life of the loan, you can dramatically increase your savings, often by hundreds of thousands of dollars. No wonder, more and more people are going for this option. All you need to do is a bit of the math and it becomes clear as daylight that by refinancing and shortening the term and reducing interest payments you can make dramatic mortgage loan savingsYou need to organize your finances before you take on the commitment of your own home and a 30-year period of loan repayment. Again, if you go in for mortgage refinance and change your mortgage loan’s term, you can organize your financial plans. For instance, if you’re 50 years old and plan to retire at the age of 65, you should think of paying off your mortgage in 15 years so that you have no liability when you stop working. It is both financially and personally rewarding to have all loans out of the way when retirement arrives.If you are a younger parent with children, you will be planning for their college education in 10 to 15 years. In that case, too, you would want to do a home refinancing to shorten the term and pay off the mortgage before the tuition bills begin to arrive in the mail.This is the best way to avoid making payments of tuition and mortgage at the same time. It can otherwise be terribly difficult to combine the two. If you explore all the possibilities of mortgage refinance, you can even save enough to offset the cost of your child’s education by not paying an extra 15 years of mortgage interest. This is the time to take advantage of this double-barreled bargain, because the interest rates are near their all-time lows. However, there are loud signs that they will reach double digits within the next few years.  Refinance by visiting Refinance Mortgage

Mortgage Refinance and Taxes When you own your home, you get large income tax deduction for mortgage interest. However, when you refinance your mortgage loan into a lower interest rate, you’ll pay less interest but more income tax. HAD vs. HEDHAD stands for Home Acquisition Debt and HED stands for Home Equity Debt. HAD is the term used by the IRS for the first or second mortgages that are used to buy, build, or improve your home. You accumulate HAD if you refinance to get either better rates or more favorable terms. On the other hand, if you do a cash-out refinance, the money that is not used for home improvements is considered Home Equity Debt (HED). Acquisition Debt is fully tax deductible, up to $500,000 for individuals, and $1,000,000 for married couples who file joint returns. The tax deduction limit for Equity Debt is $100,000 more than the existing debt at the time of your refinancing. If you have a mortgage with a balance of $200,000, you can refinance into a $300,000 loan (assuming your home appraises for at least that much now), and still deduct the full interest payments from your taxes. The interest paid on any balance higher than $300,000 is not deductible at all.You can take out points on your mortgage in order to push down the interest rate even further. Points are generally tax-deductible, like interest payments, except when you’re refinancing.Some points are charged for lender services and are not tax deductible while others for prepaid interest are deductible. In general, the points are prorated throughout the life of the loan; so if you paid $4,000 in points for your 30-year loan, but $1,000 of that was for services, you can deduct 1/30th of $3,000, which is $100 a year.However, if you have used part of the refinancing funds for home improvements, you can deduct a portion of the points immediately. For example, if you took a $100,000 mortgage loan, you could pay off an existing $80,000 mortgage and use the rest for home improvements. In this case, you can deduct 20 percent of the points the first year, and spread the remainder throughout the next 29 years.But, if you refinance again, all points that have not yet been deducted are applied in that one year, regardless of whether the new loan carries any points.

In the final analysis, what you save in terms of interest you pay as taxes when you go in for refinancing your mortgage. Thus, you might want to do a tax code cram session before deciding how to refinance. It is better to know the nitty-gritty of it before you get caught unawares when you file your next tax return.  To get a great refinance quote, visit our home page www.myloanexpert.com.