This year borrowers will be receiving special tax breaks for refinancing. Most of us overlook the tax breaks available when we refinance our mortgage. You can get special tax breaks on the following:
PMI premiums: Private mortgage insurance or PMI comes into the play when you are unable to pay 20% equity in your home as down-payment. If you have taken out a loan in 2007 or later, you’ll now be able to deduct premiums for loans. The best part is that, this rule applies not only for private mortgage insurance but also for premiums paid for mortgage insurance provided by the Department of Veterans Affairs, the FHA and the Rural Housing Service.
Suppose you took out a loan before 1st January, 2007. You must be thinking that you won’t qualify for the tax breaks. However, if you refinance the loan now, you can take advantage of the tax breaks. But, it should be noted that this deduction is available only to taxpayers who itemize their deductions. The write-off will expire at the end of 2010.
Deducting points paid: Most of us know that we can deduct the points paid to get a mortgage. However, you can also deduct the points paid to refinance a mortgage. You can even spread the deduction over the life of the loan. Suppose you refinanced your loan to a 30 year-mortgage and paid 2 points. You’ll be able to deduct one-thirtieth of those points per year for 30 years.
Again, you should note that if you refinance for the second time with the same lender, you cannot deduct the remaining points in one year. It will be added to the points charged on the second refinancing and you will be able to deduct it over the life of the loan.