home loan interest

[gman]

Local bank willing to buy taxpayers mortgage. The loan is still for taxpayers home, but now the bank calls it a personal loan. Is this still deductible on Sch A?

[erchess]

My take

My opinion would be that it comes down to whether the home is still securing the loan. If the home is still securing the loan, the taxpayer still has a mortgage and should receive a 1098 which would mean that subject to the rules we all know so well the interest is probably deductible in part or in full. If the home is not still securing a loan then the taxpayer no longer has a mortgage, should not receive a 1098 and cannot deduct the interest. If the taxpayer feels that he has a mortgage but does not receive a 1098 and cannot resolve the situation with the lender alone then he or she needs the assistance of a lawyer.

[Roberts]

Is the loan backed by the home as a replacement loan or is there an investment account being used as collateral? If it's backed by the home, I don't see a problem. The banker will probably write up a letter explaining the situation.

I had a client take out a bridge loan from our brokerage firm's bank with the securities account used as collateral. ULTRA low rates of about 1.7%. The problem was you can't then turn around and take a mortgage deduction.

[Gary2]

Is the loan backed by the home as a replacement loan or is there an investment account being used as collateral? If it's backed by the home, I don't see a problem. The banker will probably write up a letter explaining the situation.

As far as I know, most jurisdictions require that lien be recorded in order for real estate to be treated as collateral for a loan. I can't imagine a bank not issuing a 1098 if that's the case (unless the interest is below the reporting requirements). But asserting that the loan is secured by the home, without having it recorded, seems unlikely to hold up.

I'm curious. It's rare that an unsecured loan could be better than a mortgage. I suppose it's possible that if the current mortgage is upside down, there's no way to refinance at the full amount - but a personal loan of some sort could meet the difference. Or perhaps pay it off, and then get whatever mortgage or equity loan is possible, at better rates, to pay off as much of the personal loan as possible. If it isn't something like this, I'd start worrying about something funny going on.