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home equity loan refinancing
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You should be aware of an Internal Revenue Service
(IRS) ruling with respect to points paid solely for refinancing your
home mortgage. IRS regulations require that interest (points)
paid up front for refinancing must be deducted over the life of the
loan -- not in the year you refinance -- unless the loan is for home
improvements. |
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How would refinancing
affect the taxes you owe?
With a
lower interest rate on your home loan, you will have less interest to
deduct on your income tax return. That, of course, may increase your tax
payments and decrease the total savings you might obtain from a new,
lower-interest mortgage.
You should be aware of an Internal Revenue Service (IRS) ruling with
respect to points paid solely for refinancing your home mortgage. IRS
regulations require that interest (points) paid up front for refinancing
must be deducted over the life of the loan -- not in the year you
refinance -- unless the loan is for home improvements. This means that if
you paid a certain number of points, you would have to spread the tax
deduction for those points over the life of the loan. If, however, the
refinancing is for home improvements -- or a portion of the loan is for
this purpose -- you may be able to deduct the points -- or a portion of
the points -- under certain circumstances. Check with the IRS regarding
the current rulings on refinancing, particularly if you are using the new
loan to make home improvements
If you decide to
apply for refinancing with a particular lender, and if you do not want to
let the interest rate "float" until closing, get a written statement
guaranteeing the interest rate and the number of discount points that you
will pay at closing. This binding commitment or "lock-in" ensures that the
lender will not raise these costs even if rates increase before you settle
on the new loan.
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