Refinancing Mortgage Loan Expenses and Tax Deductions

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Home Mortgage Refinancing and Home Equity Loans
Spend a little time online and you'll be bombarded with ads screaming that the best home equity loan or home refinancing deal is just a click away. As a matter of fact it seems the most eye catching multi-colored 3D ads are all related to financing or refinancing your home.

It's no wonder there's all that hype, the home finance industry has begun to slow compared to it's robust history ... Read refinance mortgage article



Refinancing Your Home Mortgage Loan - Adjustable Rate Mortgage
Refinancing an adjustable rate mortgage (ARM) is a common practice for borrowers. However, it may not always be the best option. Depending on how high interest rates climb, there are cases when you could end up spending more on converting your mortgage than you would save with a locked in interest rate.

Adding Up Costs

Before you jump on a refinancing offer, consider the upfr... Read refinance mortgage article



Refinancing Mortgage Loan Expenses and Tax Deductions
Not only are your mortgage interest payments tax deductible, but so are your refinancing costs. Points can be deducted over the life of your loan. However, there are some restrictions with this program.

Deducting Refinanced Points

When you originally take out a mortgage, you can deduct the points paid the year you take out the home loan. With refinancing, you have to deduct the points over the course of the loan.

So take the point amount paid and divide by the number of payments for the entire loan. A 30 year loan would have 360 payments. For each payment you make that year, you can deduct that amount off your taxes.

If you cash out part of your equity, you can also deduct the points in full that year in certain cases. For example, home improvements meet the IRS's requirements.

When you pay off your refinanced mortgage early, you can deduct the remaining point amount from that year's taxes.

Restrictions to Be Aware Of When Deducting Refinance Costs

As with any IRS program, there are restrictions with deducting refinancing costs. For example, depending on your income level, there are restrictions on how much you can deduct.

Closing costs, such as attorney fees, notary fees, and PMI, are also excluded. When the seller pays the points, they cannot be deducted either.

Paying Points on Refinance Isn't Always Best

Points are a typical feature of today's mortgages, but don't plan on paying several points just for the tax write off.

Points are usually paid to further reduce interest rates on a mortgage. If you are planning to keep the loan for several years, this can save you thousands and may be worth paying the upfront cost. However, if you plan to move in a few years or refinance again, you won't see a gain from paying the points.

The best thing to do is find the lowest costing loan first. Ask for APR quotes from several lenders to find the optimal rates and fees. That step alone can save you thousands. Next, decide if you can come out ahead by paying additional points. Remember that the tax deduction will only save you pennies on the dollar.

Here are our Recommended Mortgage Refinance Companies Online.

Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.

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Refinancing Mortgage Loans - How You Can Refinance and Keep Your Terms

Refinancing can save you money, but the downside is that you have to restart amortization. Once again you are paying mostly interest at the beginning of your loan. But there are ways you can get around this, keeping your original pay off period and saving on interest charges.

Short-Term Refinance Loans

Lenders offer a variety of terms - 30, 25, 20, or 15 years. By refinancing for a shorter term you can closely match your original pay off date. Unfortunately, lenders don't fraction year terms - such as 22 years and 4 months.

However, by choosing a shorter term, you may qualify for even lower rates. You can also pay off your loan sooner, further increasing your interest savings.

Self Increasing Your Payment On Refinance Loans

Another option is to refinance your mortgage for 30 years. Then make an additional principal payment each month to pay off your loan at the original date. You can use a mortgage calculator to determine this amount. You can also make one extra payment a year to reach the same results.

With this approach, you have control over your payments. For some this can be seen as a negative, since there isn't the required payment. You can also pay off your loan earlier by increasing your principal payment even more.

Pre-pay "Cash Out" Refinance

The third option is to take out the original loan amount. Then prepay the principal amount to what you currently were at with your original loan. That way you will pay off your loan on your original terms.

This option gives you more control over the pay off date. But, you may be charged a higher rate for cashing out part of your equity.

Selecting the Right Refinance Option

Each approach has its own advantages and disadvantages. Mostly it comes down to a matter of preference and what works for your budget. However, do ask for rate quotes to see the difference in interest costs. Not only will you have a better understanding of the numbers involved, but you will also find the best APR.

Here are our Recommended Mortgage Refinance Companies Online.

Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.


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