Here's a brief article I received in an email from Home Mortgage Company of Minnesota. Of course, most of us already know the information included. I didn't realize (or, have forgotten...sigh) that a refinancing from the same bank required the new points to be added to the old rather than being written-off. In most refinancing situations I've seen, a new bank was the lender. I suppose the original lender wasn't interested.
FYI on Serial Refinancing
Amortizing also comes into play for serial refinancers -- homeowners who take repeated advantage of low mortgage rates to get better and better home loans. This was a common practice at the housing boom's height, but some borrowers still redo their loans more than once to get better interest rates or a different type of loan product. The good news for most homeowners is that they don't lose that portion of the first refi's points that they've been amortizing.
The IRS says you can deduct any remaining balance of the points in the year the mortgage ends, either due to a prepayment, refinancing, foreclosure or similar event. Say, for example, our hypothetical refinancer got his loan three years ago. It was a 30-year loan, so he deducted $50 in points on his last three tax returns. Now he decides to refinance again because rates are even lower. Since the first refinance is paid off via the second refinance, he probably can deduct the remaining $1,350 in points on his next tax return.
But, this immediate, and often large, points tax break doesn't apply in every case. If, for instance, the second refinancing is with the same lender, the IRS says you cannot immediately deduct any remaining balance of your first refi's points. Instead, the remaining points balance from the first refi is added to your new refinance amount. You then continue to deduct them, along with any points from the second refinance, for the life of your new loan.
So while points paid on refinanced loans usually don't provide immediate tax breaks, even when amortized they can save you some tax dollars.
If you want the technical scoop straight from Uncle Sam, check out Internal Revenue Service Publication 530, Tax Information for First-Time Homeowners, and Publication 936, Home Mortgage Interest Deduction."
FYI on Serial Refinancing
Amortizing also comes into play for serial refinancers -- homeowners who take repeated advantage of low mortgage rates to get better and better home loans. This was a common practice at the housing boom's height, but some borrowers still redo their loans more than once to get better interest rates or a different type of loan product. The good news for most homeowners is that they don't lose that portion of the first refi's points that they've been amortizing.
The IRS says you can deduct any remaining balance of the points in the year the mortgage ends, either due to a prepayment, refinancing, foreclosure or similar event. Say, for example, our hypothetical refinancer got his loan three years ago. It was a 30-year loan, so he deducted $50 in points on his last three tax returns. Now he decides to refinance again because rates are even lower. Since the first refinance is paid off via the second refinance, he probably can deduct the remaining $1,350 in points on his next tax return.
But, this immediate, and often large, points tax break doesn't apply in every case. If, for instance, the second refinancing is with the same lender, the IRS says you cannot immediately deduct any remaining balance of your first refi's points. Instead, the remaining points balance from the first refi is added to your new refinance amount. You then continue to deduct them, along with any points from the second refinance, for the life of your new loan.
So while points paid on refinanced loans usually don't provide immediate tax breaks, even when amortized they can save you some tax dollars.
If you want the technical scoop straight from Uncle Sam, check out Internal Revenue Service Publication 530, Tax Information for First-Time Homeowners, and Publication 936, Home Mortgage Interest Deduction."
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