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Mortgages Offer Tax Benefits

Mortgages Offer Tax Benefits

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Mortgages Offer Tax Benefits

Mortgages Offer Tax Benefits

Mortgages Offer Tax Benefits

There are benefits to owning a home, especially at tax time. Homeowners can take a deduction of their interest and property taxes. In the past, taxpayers had to file the itemized tax forms to get the credit. In 2013 this deduction is available for all tax payers who own a home. There are benefits for renting, but the benefit from purchasing your home allows for a bigger write off of mortgage interest.

Owning your own home is a big responsibility. The government rewards homeowners with large breaks on their tax bill every year. Purchasing a home is ideal for families or even singles, which are staying in one area for a long time. Paying rent makes more sense for those who move around frequently, or who are living where they do not pay rent.

Real Estate Write Offs

Mortgage interest is not the only tax break that a homeowner is entitled to receive from the US Federal government.

  • Some mortgages come with points. This is a benefit to the lender, and one for the borrower. One point is equal to 1% of the loan total. These points are tax deductable for the homeowner.
  • Property taxes are also deductable. All states are different. Some charge personal property taxes. The rate your state charges will vary. This too is a real estate write off. The amount that can be claimed will also vary by state.
  • Did you make home efficiency upgrades to your home? Home improvements such as adding insulation, roof and upgraded windows may be tax deductable.
  • Did you sell your home? You may be able to deduct a certain amount of capital gains profit.
  • Take the home office deduction if you work from home. There are restrictions and they do vary by state, but this is a deduction that a homeowner with a home business can take.

Homeowners receive the maximum deduction for the luxury of owning their own home. There are more deductions during the first year of homeownership. Always check with a tax specialist to determine your deductions.

Tax time comes but once per year. Getting a big refund from the federal government is icing on the cake for homeowners. Some deductions may only be available to taxpayers who itemize their deductions. The new tax regulations are allowing short form filers to take certain homeowner deductions. These may vary by state. Before taking any tax deduction, check with a professional realtor or tax preparer for the most recent deduction rules.

The important thing to remember is that there are financial and tax advantages for owning your own home. Most homeowners have a list of real estate write offs that can be claimed on taxes. Get the most out of your homeownership by collecting all the credits that are due to you.

(DISCLAIMER:  WE ARE NOT TAX PROFESSIONALS, THIS IS NOT TAX ADVICE!!!)

Adjustable Rate Mortgages Explained - Not Always a Bad Thing

Adjustable Rate Mortgages Explained – Not Always a Bad Thing

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adjustable rate mortgages explained

Adjustable rate mortgages explained!

One of the choices a new homeowner will have when applying for a mortgage is if the interest rate is to be adjustable or fixed. Adjustable rate mortgages explained in simple terms (or ARM) means that the interest rate of your loan will adjust with the national average. A fixed rate mortgage has a fixed interest rate that does not change.

There are debates on either side of the adjustable rate mortgage option. It is important to understand what a purchase of a home with adjustable rate mortgage really is to decide if it is a good choice.

Types and Limits of ARM Rate Adjustments

The interest rate for a new ARM is typically lower than a conventional fixed rate loan. It is adjusted with either one-year treasury rate, LIBOR index or the COFI index. The rate does have a limit, so there are no worries about it getting terribly high. In most cases, the rate cannot increase by more than two points per year and no more than six points for the life of the home loan.

When homeowners purchase a home with adjustable rate mortgage the interest rate begins lower than the index followed. Timing for rate adjustment period will vary by lender. The most common ARM terms are for adjustments once per year. Some lenders will adjust monthly or up to several years, depending on the life of the loan.

Some lenders use an interest only program for a home loan. The terms of this loan the borrower will pay only interest payments for the first five years of a loan. After five years, principal is added to the monthly payment. As this is an adjustable interest rate, the payment could be considerably higher. Many homeowners who choose this option will refinance before the initial five years has ended.

Pro’s and Con’s

This type of mortgage appeals to borrowers with lower income or credit rating. The ARM rate begins low allowing for lower monthly payment options. Lenders must apply the “Ability to Pay” rule to insure that the borrower can afford to pay the loan payments for the life of the loan, including higher interest rates. Using this rule protects the borrower from over spending and going into foreclosure.

With adjustable interest rates, payments can often rise. A borrower must be prepared to pay higher monthly payments as the loan matures. Depending on the terms of adjustment, some borrowers may owe more than the loan value at maturity. Some ARM terms include penalties for the borrower making more than the actual payment.

Homeowners with an existing higher fixed rate mortgage will sometimes choose to refinance to an adjustable rate mortgage when they need to lower payments or to avoid foreclosure. Refinancing for better terms is common with long-term mortgages. Switching to an adjustable rate will often result in lower monthly payments.