Deducting Mortgage Interest. Mortgage interest on a primary residence is usually fully tax-deductible, unless your mortgage balance exceeds $1 million or you took out a mortgage for reasons other than buying, building or improving a home. To claim this deduction, you should fill out Schedule A, labeled “itemized deductions.” Your lender should send you a “Form 1098” that tells you how much mortgage interest you paid for the year. You should record your interest deduction on line 10.Late payment charges also may be deducted as home mortgage interest if not for a specific service received in connection with your home loan. The same is true for mortgage prepayment penalties – if you pay off your mortgage early and incur a prepayment penalty, you can deduct that penalty as home mortgage interest (subject to the same requirements for late payments).

Deducting Loan Points Paid on a Purchase. The points you pay on a purchase mortgage are deductible the year you made the purchase. You can deduct any points you paid — and that a seller paid on your behalf* — if you meet the following criteria: * The loan is secured by your primary residence and the loan was used to buy, improve or build the home. * Paying points (and the amount of points paid) is not an irregular practice in the seller’s geographic area; * The points are computed as a percentage of the loan principal; * The points are clearly delineated on the buyer’s settlement statement; and * You put cash into your home purchase in an amount at least equal to the points you were charged.

As always, you should check with your tax advisor to determine which of these deductions apply to you!

Your tax professional may advise you that interest on the amount of your loan exceeding 100% of the value of your home will not be deductible on your tax return.

When you obtain a lower interest rate, you will have less to deduct on your income tax return. That may increase your tax payments and decrease the total savings you might obtain from a new, lower-interest mortgage.

Deducting Interest on a Home Equity Loan. The interest on a home equity loan may be tax deductible up to $100,000. However, if your home equity loan when combined with your first mortgage amount, increases the debt on your home to an amount more than the property’s actual value, there may be deductibility limits. Usually, you can deduct the smaller of interest on a $100,000 loan or your home’s value less the amount of your existing mortgage.

Many borrowers elect to have impound or escrow accounts. In this case, the borrower’s payment exceeds the amount necessary to pay the principal and interest. The amount over this goes into an account used to pay property taxes, homeowner’s insurance and possibly mortgage insurance. When calculating your property tax deduction, do not deduct what you pay into the impound account. You are allowed only to deduct what is paid from the impound account to the property taxing authority.

*Seller Paid Points are Deductible by the Buyer. When a seller pays points for the buyer (or in other words, buys the mortgage rate down) the buyer gets a lower mortgage rate.

Have you refinanced more than once in recent years? Many homeowners have and may have overlooked an important opportunity. Say, for example, you refinanced in 2001 and paid points. You can deduct 1/30th of those points in that tax year. However, rates continued to drop, so you refinanced again in 2003, paying off that 2001 loan. The remaining points from the 2001 refinance — that is, those that haven’t yet been deducted — can now be deducted in full since that loan has been paid off.

Deducting Loan Points Paid on a Refinance. If you refinanced last year, you may be able to write-off any points you paid to buy down the mortgage rate. To do so, you deduct the points proportionately over the life of the new loan. For example, if you took out a 30-year loan, you would deduct 1/30th of the points you paid each year.

Deducting Real Estate Taxes. Real estate taxes, which are annual taxes based on the assessed value of a property, also are tax deductible. Your mortgage interest statement may list the amount of real estate taxes you paid if your taxes and homeowners’ insurance were placed in an escrow account when you closed on your mortgage. If real estate taxes aren’t included, you could review your cancelled checks to determine your total real estate tax deduction.

Editors Note: Due to the mortgage and credit crunch, interest only loans are not readily available. If you’re in need of a mortgage broker in Denver, CO contact us to discuss your mortgage options.

An interest-only loan is a loan in which for a set term the borrower pays only the interest on the capital; the capital remains owing. At the end of the term the borrower may renew the interest-only mortgage, repay the capital, or (with some lenders) convert the loan to a principal and interest payment loan at his option.

Interest Only Loans are for borrowers who want to improve their monthly cash flow. Interest Only loans are great for borrowers who expect their home values to appreciate, homebuyers who want to afford a more expensive home, and homeowners planning on selling their home in the near future.

Interest Only Loans offer much lower monthly payments because your principal amount is not included. These programs are good if values in your area are in an upward motion.

Many interest only loans offer the comfort of a 30 year fixed rate loan with the lower payments of interest only for a period of 5, 10 and even 15 years. Interest only loans that do not have prepayment penalties often can be paid ahead by homeowners who desire to lower the principal balance whenever extra money is available. At the same time homeowners can enjoy the benefit of the low required monthly payment.

As mentioned above in a conventional loan you are paying very little towards your principal during the first few years. So if you are buying a home that you intend to improve to increase its value and sell within a few years an interest only loan could be a smart choice.

Interest only loan programs are offered on fixed rate mortgages, adjustable rate mortgages, and on negative amortization mortgages.

An interest-only home loan may also be a good option for people who expect to be in their homes for less than ten years. The average homeowner stays in their home between five and seven years. As mentioned before, mortgage payments are mostly interest for the first years of the loan. Many homeowners like the option of making interest-only payments and using the extra money as they please – save for college tuition, make home improvements.

One of the advantages of an interest only loan is the ability to pay more towards your principal every month. For example, if your refinance saves you $300.00 month, you can apply $100.00 of those savings each month towards the principal on your home. You’re still saving on your monthly expenses while lowering the balance of your loan at a more accelerated pace.

Interest only loans are an excellent tool for any homebuyer looking to minimize payments.

In addition to being utilized by investment property owners and during an appreciating real estate market, IO loans are often used by those who expect their incomes to increase in the near future, such as professionals acquiring an advance degree.

Although it may vary most interest only terms are for up to 10 years. After the initial interest only period whatever is left on the mortgage is then amortized over the remaining 20 years so you must be prepared at that time to either be able to handle the new payment or be ready to refinance your mortgage.

The payment shock experienced by borrowers in interest only loan programs as they transition from the interest only period to the fully amortized period, often at 3 5 7 or 10 years, is often substantially more than they are prepared for. In fact, many mortgage experts recommend that borrowers considering an I/O loan should have a look at Pay Option ARM loan programs as well, which can present borrowers with a much more progressive transition at the expense of possible negative amortization.

I can understand how the Interest Only option can be confusing? Yet I want to thank you for reading the information above. If you would like to continue this conversation than please contact me so you and I can discuss your financial situation. Please read more valuable information and when you feel comfortable I would like you to contact me.

Interest only loans are excellent for investment properties. Small investors can qualify for larger loans to buy properties, including bigger properties, because the monthly payments they would owe are lower, and more manageable in the eyes of the lender. Also, this increases the monthly cash flow from rents. If you are considering an investment property, an interest only loan may just be the right loan for you.

Interest only loans can keep your payments lower but you also are not applying any of the payment towards your principal balance therefore the amount of your original loan is actually not being paid down. Thai may or may not be a big problem in building equity especially if the area you live in is appreciating well.

Many second mortgage products, particularly Home Equity Lines of Credit, are priced at an interest only payment.

A guide to help you shop for a mortgage more effectively:

Decide the Mortgage Features You Want: You cant compare prices of different loan providers accurately unless you can specify exactly what you are shopping for. When you shop for an automobile, you decide beforehand that you want, e.g., a 4-door Toyota Corolla with Bose speaker system, red trim, etc., etc. Similarly, when you shop for a mortgage, you must know the type of mortgage you want – whether fixed-rate (FRM) or adjustable-rate (ARM), and if it is an ARM loan, what kind? You must also know your preferred term, points, down payment, lock period and options, including interest-only, prepayment penalty and waiver of escrows.

Your mortgage broker will be able to offer you more loan programs from many different lenders when compared to a local bank. Your local bank can only offer there in house loan programs in comparison to the brokers ability to add new lenders with the newest loan programs. To ensure you have the widest selection of loan programs to choose from choose a mortgage broker.

Disclose all relevant financial information to your mortgage broker. Mortgage professionals are not there to judge your spending habits and how much you make. Rather, they are there to help you achieve homeownership within your financial means. If you are in any situation in which limits your ability to afford a mortgage, tell your mortgage professional. He can often structure a combination of loan programs to help.

Shopping around for a home loan or mortgage will help you to get the best financing deal. A mortgage, whether it’s a home purchase, a refinancing, or a home equity loan is a product, just like a car, so the price and terms may be negotiable. Shopping and comparing may save you thousands of dollars. Brokers can shop for you.

Always get quotes from 2-3 different mortgage professionals. This will allow you to make sure you are getting a deal that you feel comfortable with. If a couple of quotes are close but one seems to have a 1/8% lower rate or the closing costs appear a couple hundred dollars cheaper don’t immediately go through with the cheaper deal. Closing costs can be calculated slightly differently, and the cheaper deal initially may not be the cheaper deal in the end. At this point I highly recommend going with the mortgage professional that you feel more comfortable with. Remember the old saying “you get what you pay for”. Going with the absolute cheapest is not always the best. The mortgage professional who returns all of your calls (when he/she says they will), is completely knowledgeable about your mortgage loan and all of the details and you feel you can trust should be the final decision maker for you.

One key factor in determining which loan program to choose is knowing how long you’ve determined you will stay in the home you are buying.

When shopping for a mortgage on line use a site that allows you to choose the lenders or mortgage brokers that your information will be sent to. Applying directly to the lender/brokers site will help you to avoid being inundated with phone calls from websites that sell your information.

Never forget that the integrity and straightforwardness of the mortgage professional with whom you are dealing is paramount! Always make sure you are dealing with someone who is properly licensed, experienced and has a good reputation. Ask for the names of one or two previous clients for reference.

Always request a copy of the Good Faith Estimate (GFE) from your mortgage broker. This estimate will let you see upfront the fees you will be charged and the interest rate you will be receiving.

This is why it is important to “shop” for your mortgage with lenders on the very same day. Key factors can see mortgage rates changed several times in a given week, sometimes in the same day. The lender that you get a rate from on Monday may not be able to give you the same rate on Wednesday.

Payment of the mortgage loan before the scheduled due date; may be Subject to a prepayment penalty.

If you plan to stay in your home for more than 3 years, for example, you might be able to get a slightly lower interest rate if you agree to take a 3 year pre-payment penalty. As long as you don’t move or refinance for 3 years, you will save money with the lower interest rate. If you have to move within the first 3 years due to an unforeseen emergency, you will have to pay the pre-pay penalty. It will be based on the amount of time left in the penalty period.

A Hard prepayment penalty means that you will incur a penalty for paying off your mortgage early regardless of whether you are selling your home or refinancing.

In most cases, you can take a minimal hit to your rate for a shorter or no prepayment penalty.

A Soft prepayment penalty will allow you to sell your home without incurring a penalty for paying off your mortgage early. If you were to refinance within the prepayment period with a soft prepayment, you would incur a prepayment penalty.

A pre payment penalty is usually six months of your mortgage payment

Some states do not allow Pre-Payment Penalties, or have modified penalties. The only exemption to this, would be from a Federally Chartered Bank.

You should check if your loan has a prepayment penalty by reviewing the federal truth-in-lending disclosure you will receive from the lender when your loan application is submitted.

When purchasing a home you intend to live in for a long period of time always take a prepayment penalty. If you keep the loan in place for 10 years or better you will save thousands over the life of the loan.

Usually the term on a prepayment term is anywhere from 6 months to 5 years.

Some states limit the application of pre-payment penalties by local or regional lenders, however national lenders will often be able to offer a loan with a prepayment penalty even in these states, and often a lower rate and or payment as a result.

A lenders charge to the borrower for paying off the loan before the end of the term. It is present in some mortgages, preventing borrowers from rapidly refinancing.

Under most circumstances, there will be no pre-payment penalty on conforming, FHA or VA loans.

Some prepayment penalties will only apply if you refinance your home within the prepay period, and not if you sell your home. This is generally referred to as a “soft” prepay.

Hard Prepay penalty pertains to a penalty whether you sell or refinance while the soft pre-pay only pertains to a penalty if you refinance. The soft prepay will not affect you if you sell.

Some states prohibit prepayment penalties.

A penalty may or may not apply to repayment resulting from a home sale. If you are 100% sure that you won’t be selling your home soon then it may be a good idea to get mortgage financing that includes a prepayment penalty, especially if the lower interest rate in trade is well worth it.

Most lenders will allow you to buy-out the pre-payment penalty. The charges will vary among lenders.

If you pay off your mortgage before it is due, you may be charged a fee — this is referred to as a prepayment penalty.

Pre-Payment penalties generally enable lenders to offer borrowers lower interest rates for the life of the loan, so if you are going to be in your house longer than 2 years, a pre-payment penalty can prove to be more beneficial than the word “penalty” would indicate, resulting in large savings over the long term, especially on fixed rate loans.

Prepayment penalties on a loan offering can change the rate you pay for your mortgage. Many times you can pay a higher rate to reduce your prepayment penalty with that lender. This is one of many reasons why different mortgage brokers quotes may vary with the same borrower information.

Prepayment Penalty can be used as a tax write-off at the end of your current year. Please advise your tax consultant in regards to laws and guidelines. He/she may help you recoup the costs if you should break the contract between you and your bank.

Paying a prepayment penalty on some types of loans can carry a lower interest rate than not having one. If you feel certain that you will be remaining in the home for a period that exceeds the length of the penalty it may be a wise decision to go with the lower rate.

Many of today’s loans come with prepayment penalties. Typically, a prepayment penalty is charged if the borrower repays the loan within the first 2-3 years. This payment is usually equal to six months interest. If you are just a few months out from the expiration of your penalty period, you may want to wait it out before refinancing. However, even with a penalty the long term savings of locking in a lower fixed rate today could more than cover the penalty.

Depending on the state you live in and whether your loan was originated as a purchase transaction or a refinance, some states do not allow Pre-Payment Penalties (PPP) imposed on pre-paying a loan that was originated as a purchase. Others have laws that limit the number of years in a Pre Payment period for different transaction types. Most banks let you pre-pay up to 20% of the outstanding balance without subjecting you to a PPP.

You may be offered a lower rate if you choose to take a pre-payment on your mortgage loan. Companies will have a couple options as far as the pre-payment penalty in which you can choose from. The most common being a hard pre-payment penalty which will require you to pay a certain amount of money if you pay your mortgage off in a set period of time. A soft pre-payment penalty usually allows you to sell your loan during the pre-payment term and not have to pay a penalty. There are many different pre-payment penalty set-ups in regards to them being hard and soft, with some being a combination of the two.

Lenders that have pre-payment penalty features on their loans generally do not like to have their pre-payment penalties bought out. The number one reason for taking a considerably higher rate to avoid a pre-payment penalty is because you are planning to sell the house quickly or refinance to a new loan quickly. Lenders prefer for you to stay in your mortgage with them for long periods of time so that they can earn more money. By applying prepayment penalties to loans, the lenders can keep their borrowers for longer periods of time on average. Some people will still sell or refinance again before their prepayment penalty period is up, however the lender will make their money then from the prepayment penalty.

If you plan on moving or refinancing before the prepayment penalty expires, it’s a good idea to avoid getting one. The advantage to a prepayment penalty is that you will receive a lower interest rate. If you don’t plan on moving or refinancing, it may be in your best interest to consider having a prepayment penalty on your mortgage.

Make sure you ask and are completely aware of any pre-payment penalties on your loan before you get to closing. If you are choosing to go ahead with an adjustable rate mortgage (ARM) you should make sure that your pre-payment penalty does not exceed your fixed rate portion or your loan. An example would be if you choose a 2/28 ARM (rate is fixed for 2 years and then adjusts every year thereafter for the next 28 years) you probably do not want to have a 3, 4, or 5 year pre-payment penalty on your loan. Many times after your fixed portion of your ARM is up you will choose to refinance to either another ARM loan or a fixed rate loan and you don’t want to get stuck still having a pre-payment penalty.

If you are taking an adjustable rate mortgage (ARM) with a prepayment penalty make sure that the penalty is not longer than the fixed period of the ARM because some arms may go up between 5 and 6% after the initial adjustment and at that point it would be in your best interest to be able to refinance without penalty after the initial fixed period.

Other sites: Mortgage Broker | MIP | 1003 The Loan Application | Closing Costs| Pay Option Arm Calculator

Editors Note: Due to the mortgage and credit crunch, rural property loans may require additional paperwork. If you’re in need of a Denver Home Loan contact us to discuss your mortgage options.

Rural generally refers to areas outside of larger or medium size cities. Each lender has their own version of what rural exactly is.

You can still get the common 30 and 15 year fixed mortgages with rural properties. Various types of ARM’s are also available. A lender may require a prepayment penalty if you have a rural property, you may be able to buy this down or buy it out completely.

There are lenders that will lend up to 100% of the appraised value of a rural property. The interest rates are generally higher on these programs due to the risk involved for the lender.

Guidelines and underwriting requirements usually change a little bit and get a little more strict on a rural property compared to a suburban property or urban property. Rates may sometimes increase for rural properties and the allowable LTV’s (Loan to Values) will usually decrease slightly. For example if you were able to borrow 90% of the value of your home with a suburban property, you may only be able to borrow 85% of the value of your home with a rural property.

It is usually much more difficult to obtain comparable sales in a rural area. This makes appraising the property more difficult, as well as harder for the bank to determine the properties values.