[net.taxes] Home refinancing

sjc@lambda.UUCP (Sandy J. Cifrodelli) (03/06/86)

Does anyone out there know anything about refinancing a mortgage?
Could someone summarized the 3% rule argument (refinance if the interest
rate is three percent lower than your current rate)?

It seems to me that it would take more than a 3% difference in interest rates
to breakeven in three years, especially with the high closing
costs that are apparent today.
Also what closing costs that were paid on the initial purchase
would not have to paid with refinancing (e.g., homeowners prepayment
and 3 months of property taxes)?
Also,
can the refinancing points be written off the first year (i.e.,
not IRS objection if audited)?

Thanks
Sandy

suhina@kodak.UUCP (brian suhina) (03/07/86)

> Does anyone out there know anything about refinancing a mortgage?
> Could someone summarized the 3% rule argument (refinance if the interest
> rate is three percent lower than your current rate)?
> 
> It seems to me that it would take more than a 3% difference in interest rates
> to breakeven in three years, especially with the high closing
> costs that are apparent today.
> Also what closing costs that were paid on the initial purchase
> would not have to paid with refinancing (e.g., homeowners prepayment
> and 3 months of property taxes)?
> Also,
> can the refinancing points be written off the first year (i.e.,
> not IRS objection if audited)?
> 
> Thanks
> Sandy
I heard that the points paid when refinancing are NOT deductable from your
income taxes. The reasoning given was you were not buying anything, just
refinancing. Still I thought points were interest whenever you paid them
and interest is deductable. Can anyone clarify the points issue?

Brian Suhina

keith@whuxl.UUCP (TITUS) (03/14/86)

> > Does anyone out there know anything about refinancing a mortgage?
> > Could someone summarized the 3% rule argument (refinance if the interest
> > rate is three percent lower than your current rate)?
> > 
> > would not have to paid with refinancing (e.g., homeowners prepayment
> > and 3 months of property taxes)?
> > Also,
> > can the refinancing points be written off the first year (i.e.,
> > not IRS objection if audited)?
> > 
> > Thanks
> > Sandy
> income taxes. The reasoning given was you were not buying anything, just
> refinancing. Still I thought points were interest whenever you paid them
> and interest is deductable. Can anyone clarify the points issue?
> 
> Brian Suhina
POINTs are simply interest that the lending institution are requiring 
payment for up front before giving you the loan.  They are deductible
whether you are financing or refinancing.  The 3% rule of thumb is not far 
off.  Of course if your house is currently at 17% and you are coming down
to 14%, that 3% is a lot larger than if your`re at 14% now and your coming  
down to 11%.  

Your closing costs are still going to be the same in most areas as if it
were a regular 1st mortg. closing.  You still need a lawyer, title, points, 
etc...

I assume you are talking about a single family dwelling that you are living
in.  

Keith Titus
AT&T Bell Labs
WHippany nj


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ellison@wanginst.UUCP (Mark Ellison) (03/14/86)

The object of refinancing your current mortgage is to lower your monthly
payments.  I have no knowledge concerning income tax deduction of refinance
points, but a tax preperation service should answer correctly.

There are two points that are worth mentioning.  Points are paid for
*originating* a loan.  If the bank you financed your mortgage through
maintains the loan in its own portfolio rather than passing it on to a
secondary market, say Fannie-Mae or Freddie-Mac, you will not be originating
another loan, and therefore should not need to again pay points.  Variable
rate mortgages are more likely to be maintained by the originating bank
than fixed rate loans.  If the loan has been passed to a secondary market,
inquire into the possibility of including the points into the new loan amount.

Either way you're way ahead.  After all, the real objection is dropping
another four digit amount in order to refinance!

-- Mark
-- 
Mark Ellison                             ellison@wanginst        (Csnet)
Wang Institute of Graduate Studies       wanginst!ellison        (UUCP)
Tyng Road, Tyngsboro, MA 01879           (617) 649-9731