Points. Because mortgage rates are still considerably low, not too many borrowers are paying points. When you obtain a mortgage loan, in order to get a lower rate mortgage, you would pay one or more points. Whether referred to as "loan origination fees," "premium charges," or "discounts," these are still points. Each point is one percent of the amount borrowed; if you obtain a loan of $170,000, each point will cost you $1,700. And the interest rate on your loan will be lowered.
The IRS has also ruled that even if points are paid by sellers, they are still deductible by the homebuyer. Points paid to a lender when you refinance your current mortgage are not fully deductible in the year they are paid; you have to allocate the amount over the life of the loan. For example, you paid $1700 in points for a 30 year loan. Each year you are permitted to deduct only $56.66 ($1700 divided by 30); however, when you pay off this new loan, any remaining portion of the points you have not deducted are then deductible in full.
Needless to say, if you have any questions about these tax benefits, discuss them with your financial and legal advisors.
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