During mortgage repayment, most homeowners are unaware of one important thing. Because most of the finances are directed toward repayment of the loan for the first few years directly paying the interest. This is a problem because the interest adds up to an enormous amount of taxes to the taxpayer. However, the interest deduction saves a great deal to mortgage taxpayers.
Importance of mortgage interest deduction (MID)
The only major importance of interest deduction to the society is that it helps to reduce the huge amount of taxes imposed on mortgagers significantly. Making it easier to acquire homes and ease the accommodation crisis in a country. A lender and a borrower work hand in hand to make potable the entire process goes through. So, before settling in the real estate business, one should get a good consultant to get a lender.
Top five ways to get a mortgage interest deduction
1. Appositely secure the loan
The only way to give your mortgage loan an appropriate security is by using your home. This can either be your first or second home. Your first home being your current long term residency while the second being one you have rented out. A condition for the second home to earn you interest deduction is that you must reside in the house for at least two weeks. A home according to mortgage terms is any place that has the facilities of sleeping, kitchen and toilet. By this, even a camping van can be categorized as a home.
2. Make the most out of your points
A point in a mortgage is 1% of the total amount of loan that you owe to your lenders. This goes both ways for both debtors and lenders. As a debtor, it guarantees less low rates of taxation and higher interest deduction rates. All your points’ transactions should be in the 1098 statement. This also gives details on all your interest payments on your mortgage. In other cases, the points may not appear in this document, they can be found on other documents like the closing document. Here, you should details are entered on line twelve. All instructions can be accessed from Schedule A.
3. Utilize the form 1040s power
Filing and itemizing deductions on this form gives you the power of housing interest deduction. It only happens provided that you possess ownership interest over the mortgage. Also, you and your lender must give an assurance of paying back the mortgage loan. Getting a longer 1040 form guarantees fewer deductions.
4. Take advantage of your loan capabilities
Your mortgage might offer you the ability to have a total mortgage deductible interest. This is possible only if;
You have a grandfather debt. This refers to a mortgage you took before October 13th, 1987
You have a home acquisition debt. This one refers to the loan you secured after October 13th, 1987 to improve, buy or build your home. Also, in addition to your grandfather loan it should aggregate to 1 million dollars (USD) by 2014.
You have an equity debt. This refers to the debt after October 13th, 1987 for a purpose other than the above. By 2014, it should give an aggregate of 1 million dollars (USD).
5. Power of refinancing
The balance between two debts, debt after refinancing an acquisition loan and original debt is taken as a home equity debt. A home according to mortgage terms is any place that has the facilities of sleeping, kitchen and toilet. By this, even a camping van can be categorized as a home. Reaching an interest of more than 100,000 USD gives you the power of mortgage interest deductions. This is under the condition that it meets all the requirements by IRS.
Regardless of the mortgage terms, the experts advice that borrowers should acquaint to terms of MID where possible. This is easy and helps avoid long-term problems such as eviction by the mortgage company. Also, having a good understanding of your lenders conditions is important. A lender who will help you in situations requiring mortgage interest deduction is the most advised. Taking the above 5 points into consideration and understanding fully the terms of your mortgage will help you acquire the interest deduction. This helps you save a great deal of money and encourage sin the repayment process.