Kathryn Hoffman - THE COMPLETE GUIDE TO BUYING A HOME

cost effective to keep the money earning interest rather than applying it to your down payment. Speak to a financial advisor for help with your specific situation.

OTHER HOMEOWNER TAX BREAKS: REAKS:

• The Mortgage Interest Deduction. This is one of the most beneficial tax breaks that home buyers can take advantage of, whether they are first-time buyers or otherwise. The IRS allows you to deduct from your taxable income the interest you pay your lender. Home mortgage interest is one of the largest deductions for those who itemize. Lenders will report your mortgage interest on a 1098 form sent out annually. The Mortgage Interest Deduction (MID) is valid for mortgage debt up to $750,000 or mortgage debt up to $375,000 if you are married but filing separately. Home buyers can receive a large benefit in the first years after buying, as the first repayments have the highest interest. To claim the MID benefit, home buyers will have to file an itemized tax return. • Mortgage Points. Discount points (also known as mortgage points) are fees paid directly to the lender at closing in exchange for a reduced interest rate. The cost of discount points is equivalent to 1% of your mortgage ($1,000 for every $100,000). Discount points involve prepaid interest and can reduce your total mortgage payment. The interest rate on your mortgage typically lowers by 0.25% with each point you buy. If you elect to do this, the fee for the points is tax deductible for the year in which you paid them, assuming the loan you obtained is for your full-time, year-round home (as opposed to a second home or a vacation home).

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