Your Questions About Mortgage Refinancing Tax Deductible

Charles asks…

Negative amortization tax deductible?

I refinanced my mortgage in 2007, and added the negative amortization to the new loan…..Does that mean I can deduct this amount from my 2007 taxes?
Many thanks!
v_b: the negative amortization is included in the new loan….isn’t that considered paid???

John answers:

No. It’s still unpaid interest. You haven’t actually paid it so you can’t deduct it.

Robert asks…

Can interest for non-secured real estate loans be tax deductible?

My husband works for a large financial services firm. We are getting a mortgage for our first home purchase through this company and one “benefit” they offer to employees is, if you get a mortgage through the company, they also offer a $2500 or $5000 (your choice) *non-secured* loan for a five year term. During that five years, you pay only interest and they pay principle. After five years, you pay both P&I. The catch is that the entire loan amount must be used toward a downpayment or closing costs for your refinance or purchase. Since this loan is being used 100% for home purchase purposes, is any of this interest tax deductible?

John answers:

It is deductible….Just like the interest on HELOC’s and similar 2nd mortgage instruments are also deductible…

Susan asks…

Refinance tax Deductibility Question- FHA refinance, Primary Residence?

I am taking out an FHA 15 year fixed mortgage. I am being charged 1% loan origination, a 700 processing fee, a 700 underwriting fee, and the standard title costs, and government transfer fees. I am getting 4.25% rate. Also, I am paying 1% FHA Up Front Mortgage Insurance Fee. I know that I can deduct the 1% loan origination fee over the life of the loan. Is anything else tax deductible? I live in Indiana if that makes a difference. The processing and underwriting fees are paid to the bank along with a $295 warehouse fee and $150 admin fee. Please let me know what fees both to the bank and if any other title fees are tax deductible.

Thank you for all your help.

John answers:

You cannot deduct the processing fee, warehouse fee or the admin fee. You are correct about the loan origination fee. Commitment fees and processing costs are not tax deductible.

Ken asks…

Should I refinance my fixed 15 year 5% mortgage for a fixed 30 year 5.75% mortgage to free up cash flow???

I am thinking of refinancing so I can free up monthly cash flow to invest.

I have been looking at a refi from www.madrate.com (yes, 5.75% check it out!!!) and they offer a $289 fee (includes credit, doc prep, processing, underwriting, tax service & flood certification fees)

I have been reading various advisor recommendations to have a 30 year mortgage rather than a 10 or 15 so to free up investment cash flow. (www.ricedelman.com) Rates are still pretty low right now and are very attractive.

I know that when I pay mortgage interest, it is paid from my after tax income. It is also tax deductible at the end of the year.

I also know that when I earn interest in the stock market, this is pretax interest. If I earn 8% in stocks, my effective rate earned will be lower since I need to pay taxes on it at the end of the year as well.

I can handle the 15 year payment just fine
No PMI
Home is worth $300k – balance is $178k
I have 11.5 years left on the mortgage – got it in 2005

John answers:

I think you’re missing a MAJOR factor here.

Even if you’re successful in investing the difference over the remainder of the 15 years (that assumes that the earnings on the invested part, after taxes, is more than 5.75%)… Will the earnings in years 16-30 beat what you could earn by investing the entire sum (since you would have paid off the mortgage).?

Betty asks…

should i refinance or not?

i bought my house 2 years ago for 389000. i have gotten 2 mortages(TOTAL 355,296) so i did not have to pay PMI, but now it is tax deductible. The 1st mortgage is for 301,611 at 5.75% for 30 years. My 2nd mortgage is for 53,685 at 8.8% for 15 years and it is a 2nd balloon or something, so the 2nd mortgage i have to pay 358$(interest only) a month for the full 15 years and then the principle has to be paid in full or i refinance.

my bank countrywide told me i can refinance both mortgages for 360,000 at 6% fixed for 30 years. but they told me i would be paying 3700 in closing cost now they sent me the paperwork to sign i see the closing cost tally up to be 13K?says closing cost and prepaid items

worst case also i would have to pay a PMI of 200$ a month. i am thinking i will stay in the house for a long time.
now i am looking at the paper work i have to call because i think the lender is paying for some of the closing cost but i belive i am still paying about 4k in closing cost since they are refi me at 360k should i try to pay off my 2nd mortage? or is it not worth it because it 358$ a month just in intrest plus principle?

John answers:

I think to refinance is a little better deal in a long run.considering you intend to stay there for a while.

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