Mortgage Loan

On My Taxes, Is There A Limit To The Amount

On My Taxes, Is There A Limit To The Amount Of Mortgage Interest That I Can Deduct?

Each year, there is a limit as to the amount that an individual can deduct from their taxes in response to the amount of mortgage interest that the individual has paid over the course of the year. In the cases listed below, the average limitation has been defined. Some individuals will notice that they are further limited. This occurs in specific and individualized situations.

For these people, the specific limitations are calculated in a case-by-case basis. However, these limitations are well-defined for the general population and the cases that require extended limitations have been noted. Despite the fact that there are two different types of mortgages which can be taken out by individuals for their residencies, both loans are subject to limitations regarding the amount of interest that can be deducted, though the amounts do differ in quantity.

These two types of loans are defined by the situations to which they are applicable and have been created by the United States federal government in order to allow individuals ease in determining which type of mortgage or home loan they have taken out. It is very easy for an individual to use these definitions in order to determine the type of mortgage to which they are indebted by their financial institutions. First, there is the type of loan or mortgage that allows an individual to purchase a home or build a home on a specific location with the intention of the owner to live at the residency. This is known as home acquisition debt. The second type of mortgage loan is that which is used by individuals in order to refurbish or improve upon an existing residential structure. This is known as home equity debt.

Overall, the amount of interest that an individual may deduct on their taxes when it comes to home acquisition debt is not to exceed one million pounds (1,000,000.00), as specified by the government and the Internal Revenue Service. This is the standard interest limitation that has been declared for primary homes, as well as secondary residencies. However, the amount is reduced for individuals who are married and filing their taxes separately. A person who is married, but filing their taxes separately from their spouse, may not claim more than half-a-million pounds, or five hundred thousand pounds (500,000.00).

Home equity debt has a different amount put in place as the limitation. Main homes and secondary residencies may not have an interest deduction on one’s taxes that is in excess of one hundred thousand pounds (100,000.00). When individuals are married but filing their taxes separately, the amount is reduced by one-half. These specified individuals can not exceed a deduction of fifty thousand pounds (50,000).

Even with these limitations, some individuals have to be aware that they could be limited even further when it comes to the amount of interest that the individual may deduct in response to their home acquisition debt. This is the case when the home of an individual has a fair market value below the amount of debt that the individual possesses. This is calculated on a case-by-case basis and dependent upon specific situations. Limits are put in place based on the individuals loan amount, filing status and adjusted gross income in order to make sure that individuals receive the appropriately priced return.

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Monday, July 26th, 2010 Mortgage Fee No Comments

Mortgages: encouraging stronger personal economic growth

Monetary policy of every individual works though different channels. Financial conditions are fluctuating always making way for loopholes in your particular economy. Being a homeowner equips you with the ability to take on mortgages for sustained economic expansion. You have already completed the first major task for getting mortgages, i.e. buying a home. Now, we can safely move on the other part of the process.

The market for Mortgages is huge and there is an exhaustive list of types of mortgages available. Therefore, it is important to realize which mortgages type you need and how much you can afford. Mortgages are secured loans. For the entire mortgages term which can range form 25-30 years the lending institution or the bank will hold the title to your loan. In case of non repayment your home will be on risk of repossession.

It is crucial to shop for mortgage loan and rates. Often borrowers neglect the importance of shopping around in their enthusiasm of finding the good rates. The effort that you will put in as researching for mortgages will bring great returns as better interest rates and repayment alternatives.

While searching for mortgages you must be looking at interest rates. Lenders who provide mortgages are part of a profit making process. They would charge interest rates with the idea of making profit but will avoid charging more for they might loose a customer to a competitor. For that reason shopping around becomes essential. While shopping for mortgage you will be looking for APR. It is the actual amount of interest rate that is charged for the entire term of loan. Though it is vital factor but that should not be the sole criteria for applying for mortgages.

Loan term is basic to mortgages. The most common type of fixed rate mortgages is 15-year mortgages and 30-year mortgages. The monthly repayments of 30 year mortgages will be lower than 15 year mortgages. However, your will be paying more interest rates in a 30 year mortgage. With 30 year mortgage you will get a tax right-off which can be sizeable. With 15 year mortgage you will just be paying taxes without any savings.

Two basic types of mortgages are fixed and adjustable rate. With fixed rate mortgage you owe certain percentage of loan amount as interest rate. Interest rate remains fixed for entire loan term which can be 15 or 30 year mortgages. The disadvantage with this mortgage type is inability to make use of drop in interest rates.

Other major type is adjustable rate mortgages (ARM). The interest rates changes according to the interest rates in the mortgage market. The first year interest rates are generally lower than market rates. There is an upward limit above which the interest rates cant go. However there is always the disadvantage of not being able to make use of drop in the interest rates.

The above two types of Mortgages are the major ones while the other types are derived from either or contain the characteristics of both of them. Balloon mortgages have fixed interest rates for a particular period of time. After that the entire loan amount has to be paid back in one go. This will push the borrower to start on another mortgage borrowing task. But if you are unable to find new mortgage, you stand loosing your home. The advantage with balloon mortgages is low initial payment. Balloon mortgages also have a conversion option and you can change balloon mortgages to another type.

There is also something called two-step mortgages. They combine characteristics of fixed and variable rate mortgages and have names like 228, 525 or 723. A 228 will have two years of fixed payment, an adjustment and then remaining term with fixed payment. Similar pattern will follow for other mortgages. Bi weekly mortgages enable you to make payment bi weekly instead of monthly. This mortgage is used to shorter the term of 30-year-old mortgages. Bi weekly mortgages are a great tool for budgeting but wont be of good help when faced with emergency money requirements.

There is not a mortgage that refuses to solve your financial dilemma. Interest rates have fallen, equity prices have raised this is the best time to apply for mortgages. If you have plans in the pipeline there is not better way to get them materialized than acquiring mortgages.

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Monday, July 19th, 2010 Mortgage Fee No Comments

Mortgage Shopping Tips

When shopping for a mortgage loan, every lender will have different rates, fees and points for each loan program. When shopping for a mortgage loan, it is important to understand the three components of a Rate and Fee Quote: (1) Premium Rates (2) Lender Fees and (3) Discount Points.

A Premium Rate offer is any interest rate above the market rate (referred to as the Par Rate). While the Par Rate changes constantly during the day, most lenders will commit to a specific Par Rate early in the day. If the Par Rate is 6.00%, the lender will only earn revenue if they offer you a rate above Par (for example, 6.25%).

Lender fees are charged for services performed directly by the lender, which may include Processing Fees, Underwriting Fees, Origination Fees, etc. These fees are charged to offset the cost of processing, closing, and funding your mortgage loan.

Discount Points often represent the largest fees associated with your mortgage loan as one point equals 1% of your loan amount. If you are applying for a loan amount of 350,000 and pay 2 Discount Points, the Discount Point Fee would be 7,000. Borrowers may use Discount Points to obtain rates below the Par Rate. For example, if the Par Rate is 6.00%, a 5.75% rate would indicate that the Borrower will have to pay Discount Points.

Factors to Consider
Every lender provides multiple combinations of Rates, Fees, and Points across a variety of different programs. All of these choices can become overwhelming when trying to decide between different programs, rates, and fee packages. To limit the possibilities, it is often helpful to answer a few key questions:

How long do you expect to have this loan? Consider the probability of relocation, moving, or refinancing when determining your timeframe. Think in terms of 5 and 10 years.
Do you have the available cash to pay additional fees now to lower the interest charges later? Be sure that paying upfront fees is the best use of your money. For example, paying higher fees or points for a lower rate may not be a good use of cash while carrying high credit card balances.

If you expect to have the mortgage a long time, paying points to reduce the rate makes economic sense because you are going to enjoy the lower rate for a long time. If your time horizon is short, avoid points and pay the higher rate because you won’t be paying it for long.

If you plan to have your loan for 5 years, paying 1 Discount Point on a 350,000 loan will cost you 3,500 upfront while saving you 88 a month. After 40 months of savings, you have recovered your upfront cost and will benefit from the lower rate. If you stay in the loan for 10 years, you will have created an additional 7,060 in interest savings over the life of your loan. Just like interest, points are 100% tax deductible in the year you pay them.

The second factor is your opportunity cost. What could you do with the money if you didn’t use it to pay points? Even if you expect to be in your house a long time, there could be other uses for your money that take precedence over the long-run savings from a lower interest rate. A useful way to pull these factors together is to look at the payment of points as an investment that yields a return that rises the longer you stay in your house.

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Monday, May 31st, 2010 Mortgage Fee No Comments

Mortgage Cycling Secrets Revealed

Have you heard about mortgage cycling? Maybe you’ve seen the ads for books on this “secret technique” for paying off your mortgage sooner. Is there some useful information in them? Yes, especially if you are not familiar with the basic premise that you can pay extra principle every year and you’ll pay off the loan sooner and save thousands on interest.

Mortgage cycling is dressed up as a “new” system, and of course there are many little tricks to doing this most effectively. There are more risky techniques too, like using short-term home-equity loans to pay down your primary mortgage now. This latter technique could cost you more in interest or even put you into financial trouble that leads towards foreclosure.

The safest way of “mortgage cycling” is to just put large lump sums of money towards your mortgage loan every few months to a year. Pay thousands of pounds extra per year, and you will pay off your loan many years sooner. No surprise there, right, but what if you don’t have the hundreds of pounds a month extra needed to do this?

Money For Mortgage Cycling

Don’t assume you can’t come up with SOME extra money, at least each year. Some will say they can’t, and yet still add hundreds of pounds per month to credit card payments from buying anything from expensive shoes to snowmobiles. There’s nothing wrong with buying these things, but the choice is yours if you want to pay down that mortgage instead.

You can also pay off large chunks of principle by using your annual tax refund, insurance settlements that are not otherwise allocated, and any cash gifts or prizes you may receive.

How much sooner you can pay off your mortgage depends on how much extra you pay and when. The sooner you pay extra money towards the principle, the better. Let’s demonstrate with a simple example, just making an extra payment each month.

Suppose you have a 160,000 30-year mortgage at a 7% annual interest rate. Regular monthly payments would be 1064.40. If you looked at your second payment you would see that it’s composed of 932.57 interest and 131.83 principle (the amount you actually pay down the loan). Just add 131.83 to your normal payment of 1064.40, and you have taken an entire month off the time it will take to pay off your mortgage.

If you did this each month, you would cut the time to pay off your loan in half. The principle part of the payment would be growing with each payment, so the extra payment would be a little more each month (around 137 by the end of the first year), but hopefully over the years your income will rise enough to afford that. Consider that if you pay normally, your last year of the mortgage you’ll pay 12,772.80 (1064.40 x 12 months). On the other hand, pay about an extra 1600 that first year, in the way shown above, and you’ll eliminate that entire last year – a savings of over 11,000!

Other ways to pay off extra principle need to be evaluated carefully. You could, for example, put a few thousand of your savings towards the loan now and save perhaps tens of thousands in interest over the years. However, will you then need to pay even higher credit card rates because you emptied your savings account and need some money? You could cash in stocks and apply the money to the loan, but will you be giving up a 9% return to pay down a 7% mortgage? You may also want to consider paying off any debts with higher interest rates before you apply extra money to your mortgage.

To keep it simple, set aside extra money every month and apply it to the loan. Then use any other money that may otherwise be squandered (like tax refunds). If you just do a few simple things to pay something extra on the loan each year, and you can forget about complicated mortgage cycling plans.

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Monday, February 22nd, 2010 Mortgage Fee No Comments

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