In the 19th century, Sherlock Holmes relied on impressive observational skills and shrewd reasoning to solve the most complex of mysteries. Holmes' brilliance was never applied to mortgage-related tax deductions, but surely he could have unraveled that case, as well. The famous detective always moved deliberately, approaching each new mystery with a closer look at the facts.
Whether you have an original mortgage or refinanced mortgage, there are three main tax deductions associated with home ownership: mortgage interest, real estate taxes, and points paid. The tax facts relevant to refinanced mortgages are discussed below.
Mortgage Interest
Generally speaking, the interest on a refinanced mortgage is tax deductible. Exceptions arise for homeowners who refinance to cash out equity, and then use the equity-related funds for something other than improving their home. In this situation, only the interest on a maximum of $100,000 of the equity debt is tax-deductible. Here's an example:
You refinance your original $125,000 mortgage for $300,000. The extra $175,000 goes towards vacations, new cars, and other discretionary spending. You can deduct the interest related to the $125,000 refinanced from the first mortgage, and $100,000 of the new equity debt. The interest on the remaining $75,000 would not be tax deductible.
Real Estate Taxes
Real estate taxes are deductible in the year they are paid to the property tax collector. You cannot immediately deduct monies put into escrow for future property taxes; that expense would be deducted later on, in the same year those funds are applied to your property tax liability.
Points
Points paid on a refinance mortgage are, in most cases, deducted proportionately over the life of the loan. That said, points might be fully deductible in the first year if the refinance is used to fund home improvements. You must meet specific requirements to qualify for this deduction, so please check with your tax advisor.
The case isn't closed just yet. Just as Sherlock Holmes outlines his conclusions with trusty Dr. Watson, you should discuss the details of your deductions with a qualified tax advisor. Once you do, you'll see that they, too, are elementary.
http://www.mortgageloan.com/refinancing-debts-and-taxes
Monday, April 30, 2007
Don't Take Advantage of Your Second Mortgage
Make no mistake-a second mortgage is a financial tool that can fix many problems. Need to finance a college education? You can tap the equity in your home for those tuition payments. Want to improve your property with a new kitchen? A 2nd mortgage gets you the cash you need. Looking to start your own business? Home equity loans can be the hero.
Compare Mortgage Rates
While it's a great tool, it does have some potential shortcomings. Counting on your home equity to double as a savings account can be a risky proposition. Here are two examples of why relying on a home equity fix can leave you broke.
1. Mortgage rate spikes can rob you blind
Let's assume that you're counting on using your home equity loan or a refinance mortgage to pay for your child's college education. Perhaps when you developed this plan, rates were low, and a home equity loan, coupled with a tax deduction, seemed like cheap, easy money. Fast forward to your child's college years. Your plan has gone awry, as high interest rates make borrowing very expensive. If this were to happen, that "cheap" money would suddenly be very expensive, making it difficult to meet your monthly payments.
2. The bubble bursts
Anyone who's suffered through the recent housing market stagnation knows the dangers of buying high and borrowing low. If you purchased a home when values were at the peak, the market may have cooled and cut into your home's equity. Suddenly, when it comes time to tap all the money that you had counted on, you find that your home doesn't appraise as highly as it once did. As a result, there's no equity to borrow against, and you're short on funds.
There's no doubt about it-home equity is a great financial tool. But as these two examples indicate, treating it as a savings account can be risky. If you're planning some significant future expenses, beef up your savings while you're building equity. There are simply too many market forces that could work against you if you don't.
Start here to compare mortgage rates from top lenders in our network.
http://www.mortgageloan.com/dont-take-advantage-of-your-second-mortgage
Compare Mortgage Rates
While it's a great tool, it does have some potential shortcomings. Counting on your home equity to double as a savings account can be a risky proposition. Here are two examples of why relying on a home equity fix can leave you broke.
1. Mortgage rate spikes can rob you blind
Let's assume that you're counting on using your home equity loan or a refinance mortgage to pay for your child's college education. Perhaps when you developed this plan, rates were low, and a home equity loan, coupled with a tax deduction, seemed like cheap, easy money. Fast forward to your child's college years. Your plan has gone awry, as high interest rates make borrowing very expensive. If this were to happen, that "cheap" money would suddenly be very expensive, making it difficult to meet your monthly payments.
2. The bubble bursts
Anyone who's suffered through the recent housing market stagnation knows the dangers of buying high and borrowing low. If you purchased a home when values were at the peak, the market may have cooled and cut into your home's equity. Suddenly, when it comes time to tap all the money that you had counted on, you find that your home doesn't appraise as highly as it once did. As a result, there's no equity to borrow against, and you're short on funds.
There's no doubt about it-home equity is a great financial tool. But as these two examples indicate, treating it as a savings account can be risky. If you're planning some significant future expenses, beef up your savings while you're building equity. There are simply too many market forces that could work against you if you don't.
Start here to compare mortgage rates from top lenders in our network.
http://www.mortgageloan.com/dont-take-advantage-of-your-second-mortgage
Refinancing Your Mortgage? Know the lingo
If the saying "familiarity breeds success" holds true, it would be in your best interest, if you're looking for a mortgage refinance, to understand the terminology. There's no need to pour over dry-as-dust mortgage textbooks. Learn a few basic terms, and you'll be headed in the right direction.
Adjustable-rate mortgage:
A loan with a periodically changing interest rate. The mortgage rate is pegged to a specific economic indicator such as treasury bills or the prime interest rate, for example. Terms can vary greatly, and often offer very low introductory rates during the early years.
APR:
The Annual Percentage Rate (APR) is intended to include all of a lender's closing costs, giving a true yearly interest rate. However, many lenders calculate their APRs in different ways.
Fixed-rate mortgage:
A loan in which the rate is set at the time of closing and is constant throughout the mortgage term.
Good Faith Estimate:
Lenders are required by law to produce a Good Faith Estimate, which details all the costs you'll be charged to close your loan.
Loan-to-value (LTV) ratio:
The ratio of your loan amount to the appraised value of your home. (Loan amount/appraised value = Loan-to-value ratio.) Generally expressed as a percentage, a higher LTV can trigger the need for private mortgage insurance or a higher rate.
Points:
A point on a mortgage is 1 percent of the total loan value. For example, a point on a $100,000 mortgage is $1,000 (.01 X $100,000).
Term:
The length of time that you have to repay your mortgage loan. Generally expressed in years, the typical term for most mortgages is 15 to 30 years.
Third party fees:
Charged by vendors, such as appraisers and title companies, these are fees that your lender uses to assess the quality of your loan.
There are plenty of other commonly used mortgage terms, but these are the basics. Study up if you have time. Like any educational initiative, it's bound to pay off in the end.
http://www.mortgageloan.com/refinancing-your-mortgage-know-the-lingo
Adjustable-rate mortgage:
A loan with a periodically changing interest rate. The mortgage rate is pegged to a specific economic indicator such as treasury bills or the prime interest rate, for example. Terms can vary greatly, and often offer very low introductory rates during the early years.
APR:
The Annual Percentage Rate (APR) is intended to include all of a lender's closing costs, giving a true yearly interest rate. However, many lenders calculate their APRs in different ways.
Fixed-rate mortgage:
A loan in which the rate is set at the time of closing and is constant throughout the mortgage term.
Good Faith Estimate:
Lenders are required by law to produce a Good Faith Estimate, which details all the costs you'll be charged to close your loan.
Loan-to-value (LTV) ratio:
The ratio of your loan amount to the appraised value of your home. (Loan amount/appraised value = Loan-to-value ratio.) Generally expressed as a percentage, a higher LTV can trigger the need for private mortgage insurance or a higher rate.
Points:
A point on a mortgage is 1 percent of the total loan value. For example, a point on a $100,000 mortgage is $1,000 (.01 X $100,000).
Term:
The length of time that you have to repay your mortgage loan. Generally expressed in years, the typical term for most mortgages is 15 to 30 years.
Third party fees:
Charged by vendors, such as appraisers and title companies, these are fees that your lender uses to assess the quality of your loan.
There are plenty of other commonly used mortgage terms, but these are the basics. Study up if you have time. Like any educational initiative, it's bound to pay off in the end.
http://www.mortgageloan.com/refinancing-your-mortgage-know-the-lingo
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