Should You Pay Loan Points on Your Tucson Home Loan?
When comparing interest rates for your Tucson Home Mortgage you will usually have the option of choosing a home loan with a lower interest rate by paying points. Simply put, a point is equal to 1 percent of the loan amount. For example, with a $100,000 loan, one point equals $1,000. Points are usually paid out-of-pocket by the buyer at closing. Paying points may seem attractive, because a lower interest rate means smaller monthly payments. But is paying points always a good idea? The answer generally depends on how long you plan to stay in your new home.
Let’s look at an example, Pat and Brenda (that’s us) are shopping for loan rates on a $300,000 home. Our Tucson Home lender has offered us a 30 year loan at 7.5 percent with no points. This works out to a monthly payment of $2,098. however, our lender has also offered us a loan at 7 percent if we agree to pay 2 points (or $6,000). At this lower rate, our monthly payment drops to $1,996, or a savings of $102 per month. By dividing the amount we paid for the points ($6,000) by the monthly savings ($102), we can see that we will have to own our new home for 59 months (almost 5 years) before we will start to see savings as a result of paying points. If we plan to stay in our new Tucson Home for many years, then paying points could make good sense. But if we plan on moving to another home in the near future, we’d be better off paying the higher interest rate and no points.
Can you deduct points on your income taxes? YES, usually. One side benefit of paying points on your Tucson Home mortgage is that the points are fully tax deductible in the same tax year as your home is purchased (closing date). However, this does not apply to points paid for a refinance loan. For refinances, the IRS requires you to spread out the deduction over the life of the loan. For example: If you paid $6,000 in points for a 30-year refinance loan, you can only deduct 1/30 of the $6,000 each year for 30 years. If you pay off the loan early, though, you can deduct the remaining amount that tax year.
As Always, Consult with your tax preparation professional for qualified and detailed information on Tucson Loan Points.