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A Deep Dive into Mortgage and Tax Facts

December 27, 2023 by Kay Monigold

Owning a home is a significant milestone that comes with a multitude of financial considerations. Beyond the pride of homeownership, there are substantial tax benefits and deductions available to those who embark on this journey. We will explore key facts about mortgages and taxes, focusing on the deductions, credits, and benefits that can make homeownership a financially savvy decision.

Mortgage Interest Deduction: A Prime Advantage for Homeowners

One of the most notable tax benefits for homeowners is the mortgage interest deduction. This deduction allows homeowners to deduct the interest paid on their mortgage from their taxable income. The rationale behind this is to encourage homeownership by making it more financially attractive. Homeowners can typically deduct the interest paid on mortgages up to $750,000 (or $1 million if the mortgage originated before December 15, 2017).

Property Tax Deductions: Easing the Burden of Ownership

Property taxes can be a significant expense for homeowners, but the silver lining is the ability to deduct these taxes from federal income taxes. Homeowners can include state and local property taxes when calculating their itemized deductions. This deduction is particularly valuable for those living in areas with higher property tax rates.

Points Deduction: Unveiling the Cost of Financing

When securing a mortgage, homeowners often pay points to lower their interest rates. The good news is that these points can be deducted from your tax return. Each point is typically equal to 1% of the loan amount, and the deduction can be claimed in the year the mortgage was taken.

Home Office Deduction: A Workspace Within Your Sanctuary

For those who work from home, there may be an opportunity to claim a home office deduction. While there are strict criteria for eligibility, if a portion of your home is used exclusively for business purposes, you may be able to deduct related expenses, including a portion of your mortgage interest.

First-Time Homebuyer Credits: Encouraging New Entrants

Governments often provide incentives for first-time homebuyers. These can come in the form of tax credits, helping offset the upfront costs associated with purchasing a home. Be sure to explore local and federal programs that may provide financial assistance or credits for those taking their first steps into homeownership.

Energy-Efficient Upgrades: Environmentally Friendly Tax Breaks

Making eco-friendly upgrades to your home not only benefits the environment but can also lead to tax credits. Installing energy-efficient systems, such as solar panels or energy-efficient windows, may qualify you for federal and state tax credits, putting money back into your pocket.

Owning a home comes with a range of financial advantages, especially when it comes to taxes. The mortgage interest deduction, property tax deductions, and various other credits can significantly reduce the financial burden of homeownership. As you embark on this journey, it’s crucial to stay informed about the ever-changing landscape of tax laws and seek professional advice to ensure you make the most of the available benefits. In the end, the dream of homeownership can be not only emotionally rewarding but also a smart financial move.

Filed Under: Home Mortgage Tips Tagged With: Homebuyer Credits, Mortgage, Taxes

What Makes Up A PITI Mortgage Payment?

October 12, 2023 by Kay Monigold Leave a Comment

Many mortgage payments are made up of four parts, called PITI. PITI is an acronym that stands for principal, interest, tax, and insurance. It’s important to understand PITI because it is the real number you need to use in order to find out how much mortgage you can afford to pay each month.

One of the biggest mistakes first-time homebuyers make is using only the principal plus interest figure to calculate how much they’ll be paying every month for their mortgage. Then, when the lender comes back and denies them, the prospective buyer is confused. Knowing and understanding PITI will put you back in the driver’s seat with your home-buying goal.

Principal
The principal part of your mortgage payment represents the amount of money that you borrow over the terms of the loan. For instance, if you borrow $100,000 and you have 20 years to pay it back, the principal that you’ll pay each month equals $100,000 divided by 20.

Interest
The interest portion of your mortgage payment is the percentage rate that your lender is charging you to borrow from them. Another way of looking at the interest is to think of it as the cost of borrowing money. Interest will be spread out over the length of the loan, just like the principal payment.

Tax
The tax portion of your monthly mortgage payment pays for real estate and/or property taxes. Real estate taxes are assessed by the local government where the properties are located. The tax rate is determined by the government and is not influenced by your personal credit score.

Insurance
The insurance part of your monthly mortgage payment pays for homeowner’s insurance and/or private mortgage insurance. If you put less than 20% down on your home purchase, you’re required to have private mortgage insurance. This amount can add considerably to your monthly mortgage payment, so it’s worth it to try to hit that 20% threshold.

Otherwise, you have to wait until your loan-to-value ratio is 80/20. After that, you can request to drop the private mortgage insurance, but the homeowner’s insurance will still be part of your monthly payment.

Now that you understand what makes up a PITI mortgage payment, you’ll be better prepared to plan for your monthly budget that includes a mortgage payment.

Whether you are in the market for a new home or interested in refinancing your current property, be sure to contact your trusted home mortgage professional to learn about your current financing options.

Filed Under: Mortgage Tips Tagged With: Insurance, Interest, Mortgages, Principal, Taxes

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Our Team

Kay MonigoldKay Monigold
Owner/Mortgage Broker/Residential Mortgage Loan Originator
NMLS#1086176

Ron MartinRon Martin
Residential Mortgage Loan Originator

NMLS#316821

Steven LoweSteven P Lowe, Sr
Residential Mortgage Loan Originator
NMLS #1085638

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