About a Refinance Tax Deduction

Paying points on your refinanced mortgage can result in a tax deduction.

If you're considering refinancing, keep in mind that unless the new interest rate is at least 2 percent less than your current mortgage rate, it may not be worth it to refinance because the difference over the life of the loan may not equal the upfront fees associated with refinancing. However, if you choose to refinance your mortgage, you can deduct the points on your taxes.

Points

Points are upfront fees that are equal to 1 percent of the loan. Paying points can help lower your mortgage interest rate.

New Points

When you refinance, any points paid can be deducted over the life of the loan. For example, if you paid $3,000 in points for a 20-year loan, you can deduct $150 per year ($3,000/20) for 20 years.

Old Points

If you refinance again, you can deduct all of the remaining balance on the old points in the year in which you convert to the new loan.

Exceptions

If you refinance again with the same lender, you may not be able to deduct all of the old points. Instead, the points would be extended to the new loan.

Early Payoff

If you pay off your loan early, you can deduct the rest of your points in the year that you pay off your loan.

Resources

• eRate: 2009 Tax Deduction Overview of Mortgages
• Mortgages Finance and Credit.org: Income Tax Deductions Home Refinancing Points