What follows is an all too familiar story in hundreds of thousands of homes across America.

Mr. and Mrs. Owin finally realized the dream of owning their own home in July 2005. They took on a home loan secured against their house in the amount of half a million dollars. It was hard, but they could make the monthly debits on this home loan and they did just that for two whole years. The monthly amount was twelve hundred and fifty dollars because the interest rate for the first two years was a very low 3%. Now the Owins are good honest people but they were miss- sold this mortgage. They didn’t pay much attention to the small print in the contract where it said the interest rate would be altered upwards in July 2007 by nearly double. Their new monthly payments would become nearly two thousand four hundred dollars. Which is a good six hundred dollars beyond the Owins’ budget.

They only half saw it coming. It was too late to sell up when the full extent of the money owing struck them. They would like to sell now but they can’t find a buyer and the property is valued at less than four fifths of their half million dollar debt. So now they are between the proverbial rock and a hard place. They can’t sell but neither can they afford the arrears. Repossession is bearing down on them like an express train.The only way out for Mr. and Mrs. Owin is a quick sale of their dream home. This is where someone pays bottom dollar for a home in advance of it being repossessed by the lending company.

So the Owins, or we should say the bank gets three hundred and seventy five thousand dollars for the house and then writes off the remaining $120,000. Unfortunately the Owins’ difficulty does not end there because the federal government sees this write off as unearned income and wants their share of it. So the Owins have no home, no money, a poor credit rating and an internal revenue bill.

This is an all too familiar picture in America in 2008. With many more people in the rate hike pipeline, facing the upward ratcheting of their home loan payments, the George W. Bush administration rushed through a package of helpful legislation. The ‘Mortgage Relief Act’came in to force just in time for Christmas last year. The aim of this act was to stem the tide of foreclosures, prop up the US economy and help people like the Owins to escape from between the rock and the hard place. It is rightly called a national homeowner crisis because people like the Owins could never earn enough to pay back the amount they were bamboozled into taking on.

This new law now changes the Federal taxation requirements so that when people have been let off the home loan, anything up to $2,000,000, they are no longer to be taxed on it. So it is much needed good news for people like the Owins.This new act is also good for the economy as a whole because it benefits two key sectors in it. These are the banks and savings & loans and the first-time homebuyers. The effect of the Act is to multiply the number of pre repossession sales and to motivate banks to market the real estate on their books aggressively.

This means millions of houses and condominiums are coming down in price. The banks make profits on lending so they are being very accommodating to anybody who comes to them with a good credit history and a desire to borrow money. Thus, this is boosting the first time buyers and thereby the economy.First time homebuyers are the engine of the whole housing market. They now are faced with an over-supply of affordable properties and very approachable lending institutions. They can negotiate inexpensive home loans for places that just last year were beyond their budgets. There are also a number of federal and local ‘easy finance programs’ available to qualifying first-timers. It is believed that with all these initiatives together the American economy will soon bounce back from its’ self-inflicted sub-prime debacle. 

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.