We just got a letter from our former mortgage holder. The lender informed us that it "has received payment in full of your mortgage loan" and is in the process of "preparing the appropriate documents" to release the lien on our home.
When we bought our Austin house seven years ago, we got what was at that time a great home loan rate. But as the rates kept dropping this year, we finally got our act together and got a new, lower rate loan on our abode.
Since we have good credit ratings, we got the best possible rate this time around, too, without having to pay points.
Each point is one percent of the mortgage amount and points are used when rates are high to buy down the loan rate.But even with today's historically low rates some folks still might need, or want, to pay points for the best possible rate.
The bad news is that they aren't deductible all at once.
Rather than deducting the full amount of refi points in the tax year in which you paid them, you must amortize them over the life of the loan.
Here's how it would work for that one point you paid to get a good rate on your 15-year refi loan of $150,000:
$1,500 in points
÷ 180 total payments
= $8.33 per payment
x 12 payments per tax year
= $100 deduction on each tax return
for the next 15 years.
Other home loan deductions: The other home-related tax breaks are the same for the refinanced loan.
The only difference likely will be that the amount of your mortgage interest deduction will be smaller than it was.
That's a monthly cash flow vs. tax deduction trade-off we're willing to take. Our new loan will save us around $450 a month.
Next spring, the first tax filing season after our refi, we also need to have our closing statement handy.
On that document we'll find the interest we paid on the loan for the time between the refinancing and when our first payment is due. That amount won't be included on the year-end interest statement we'll get from our new lender, but it's deductible.
We pay our property taxes directly, so we didn't have to make payments at our refi closing.
But if your home loan payment includes tax money so your lender can make this annual payment on your behalf, be sure to note the prorated share of the tax on your closing statement. It's also deductible.You also might find these items of interest: