|
The popularity of mortgage financing is at an all-time high with interest rates recently dipping to 40-year lows. For most, mortgage refinancing means straight forward tax consequences, where the interest on the new loan is deducted, like with the loan that was refinanced. But if paying points or the new loan being greater than the refinanced loan, it's important to be aware of certain tax rules.
Points Paid
Points, prepaid interest or loan origination fees are fully deductible, provided the loan applied for is for the original purchase of a personal residence. As mortgage refinancing does not qualify as the original purchase, points paid on refinancing a loan are not deductible at one time. They instead need to be amortized or deducted in part every year for the duration of the loan. Calculating the deductible amount requires division of the points paid by the term of the refinanced loan. Take the example of paying $3,000 in points and 30 years as the term of the refinanced loan, where $100 can be deducted in points every year.
If already amortizing points from a previous mortgage refinancing, the full remaining balance of the points can be deducted on refinancing with a new loan.
When a Refinanced Loan Is Greater Than the Previous Loan
Most home values are on the rise each year, making it a big temptation to take the money in your house out for refinancing. Refinancing for an amount more than the principal of mortgage debt that is due immediately before mortgage refinancing makes the additional amount a home equity loan. Home equity loans are still subject to interest deductions within specified limits.
1. Deductible interest is only on the first $100,000 of the combined balances of home equity loans, with interest on any debt exceeding this limit being considered nondeductible personal interest.
2. Interest on mortgage debt in excess of $1 million is not deductible.
3. A 50% reduction for married individuals filing separate returns is given on the preceding amounts.
4. Interest on the debt amount more than the fair market value of the home is exempt from deduction.
In case a portion of the refinanced mortgage funds went into home improvement and you are capable of fulfilling the 6 tests mentioned earlier, deduction can be made on the points for improvement in the same year that they were paid out of your own funds. For the rest of the points deduction can be over the life of the mortgage refinancing loan.
The article is from creditloan.com
How to apply for a mortgage refinancing?
There are so many mortgage refinancing deals available from banks and non-banks, it can be difficult to choose the right one for you. You can use the enquiry form to apply and letting an expert get you the best deal.
Remember it is FREE to apply online through firstloans.com.au.
|
