Don't forget this. The taxes you pay and the mortgage finance fees you pay to get a mortgage are tax deductible in the year you purchase your house. Make sure to keep all your closing statements and give them to your accountant when you file your taxes to claim the deductions. Go over your house closing statement to make sure you get all the deductions.
If you use an accountant he/she should know how to get these deductions. If you do your taxes yourself do not forget this fact.
Mortgage finance fees are the fees you pay to the mortgage company for helping you get the loan. So if your mortgage broker charges you 1% origination fee, that money can be tax deductible. If you decide to buy down the interest rate, the fee to do so can be tax deductible.
Side tip: Buying down the rate means to pay a certain amount upfront to the lender in order to get a lower interest rate. For example, if the best rate around is 6%, you can buy down the rate and get a 5% interest rate, if you pay a certain amount set by the lender. If you plan on staying in the house for decades this is a good idea.
Disclaimer: I am not a licensed accountant and you should talk to your tax professional before using anything I say here. If you have a competent accountant he/she should be able to help you with as many deductions as you can get.
There are also a ton of other small fees that you pay when you purchase a house that can also be tax deductible. Your accountant should have a complete list.
All the interest you pay on your mortgage is also tax deductible. And in your first few years, most of the monthly mortgage payment will be mostly interest paid to the mortgage company. This is just the way amortization works. The longer the term of your mortgage the more interest you will pay. So if you have a 30 year loan and your payment is $1,000 a month, the interest portion of this payment for the first few months, will be about $950 and the part of the payment that goes to reduce your mortgage balance will be about $50.
Note that this example is not precise. The actual amount going to principal vs. interest is determined by your interest rate.
Many people feel that paying off the mortgage is a great goal to strive for. But for many people the home mortgage is the largest tax deduction they have. Whether you should pay yours off or not is a discussion you should have with your financial planner and your accountant.
For the purposes of this article, do not forget that many of the fees you will pay at closing to the mortgage lender are tax deductible. So when getting your paperwork together at the end of the year to do your taxes, make a copy of your settlement papers as well.
A buy-down is when you as the borrower, pay extra money to the lender for a cheaper interest rate on your loan than you would normally qualify for. For this privilege the lender will charge you the appropriate buy down fee. It sounds good but you can be sure that the lender will not let you do it unless it was in their best interest. This only makes sense if you are 100% sure you will be in the house for over 10-15 years. Otherwise the math just does not compute. If you want to pay less in interest, pay off the mortgage sooner or make extra payments to principal.
Banks and mortgage companies are always on the look out for providing the most generous looking terms as possible to their buyers while keeping their eyes on the prize.
The first rule of thumb with banks is that they are in the business of making money. Despite low interest and mortgage rates, banks try to offer additional policies disguised as a deal (which it is) with the requirement that a fee be paid. One such example is a buy-down fee.
The buy-down fee is requested when lenders offer a lower interest rate on your loan. It is typically paid during the closing period, although it can also be paid as soon as you apply or when you lock your rate with a commitment agreement. This is also known as collecting points. Because of the newfound discount, lenders are forced to scramble in discounting a percentage of the loan amount and charge a fee that reflects their loss with the buy-down.
Buyers can pay any mortgage rate they want, as long as they pay the fee involved. This means Sam could qualify for a 9% mortgage rate but could get a loan of 4% or 5% as long as there is a buy down fee paid. A buy down loans price depends on how long you want the interest rate lowered, by how much, and how often the interest rate will go up or down. Don't fall for this!
Chances are that by the time you move, you will not have paid that much extra in interest to justify paying this fee. In addition, more money could be saved by taking out an adjustable rate mortgage rather than paying a buy down fee. Many people consider buying down the rate a good deal because they plan on staying in the house for a long time and because they can afford it.
You have to allocate your money. Will the saved money be used for a new purchase, like home improvements on your new property? Chances are, you won't be thinking of this at the time. Buying down the rate is simply too expensive considering your home might not be occupied 3-4 years down the road.
The buy-down fee should not be a savior for anyone. Although rising interest rates is a cause for concern, waiting for them to drop isn't the solution. Remember, you can always apply for mortgage refinance if interest rates go down. Also, sellers may offer to take care of the buy down fee for you in extenuating circumstances. This especially occurs when the market slows down.
Ameen Kamadia has sinced written about articles on various topics from Home Buyers Guide, Foreclosure Help and Home. Abby Kamadia, is a mortgage consultant, and real estate broker in Houston Texas. For the 69 other free articles on saving money when you buy a house visit Abby's