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Tip#3 in our serious to help people save money when buying a house is to know that Financing Points and Fess Are Tax Deductible Don't forget this. The taxes you pay and the mortgage finance fees you pay to get a mortgage are tax deductible in the year you purchase your house. Make sure to keep all your closing statements and give them to your accountant when you file your taxes to claim the deductions. Go over your house closing statement to make sure you get all the deductions. If you use an accountant he/she should know how to get these deductions. If you do your taxes yourself do not forget this fact. Mortgage finance fees are the fees you pay to the mortgage company for helping you get the loan. So if your mortgage broker charges you 1% origination fee, that money can be tax deductible. If you decide to buy down the interest rate, the fee to do so can be tax deductible. Side tip: Buying down the rate means to pay a certain amount upfront to the lender in order to get a lower interest rate. For example, if the best rate around is 6%, you can buy down the rate and get a 5% interest rate, if you pay a certain amount set by the lender. If you plan on staying in the house for decades this is a good idea. Disclaimer: I am not a licensed accountant and you should talk to your tax professional before using anything I say here. If you have a competent accountant he/she should be able to help you with as many deductions as you can get. There are also a ton of other small fees that you pay when you purchase a house that can also be tax deductible. Your accountant should have a complete list. All the interest you pay on your mortgage is also tax deductible. And in your first few years, most of the monthly mortgage payment will be mostly interest paid to the mortgage company. This is just the way amortization works. The longer the term of your mortgage the more interest you will pay. So if you have a 30 year loan and your payment is $1,000 a month, the interest portion of this payment for the first few months, will be about $950 and the part of the payment that goes to reduce your mortgage balance will be about $50. Note that this example is not precise. The actual amount going to principal vs. interest is determined by your interest rate. Many people feel that paying off the mortgage is a great goal to strive for. But for many people the home mortgage is the largest tax deduction they have. Whether you should pay yours off or not is a discussion you should have with your financial planner and your accountant. For the purposes of this article, do not forget that many of the fees you will pay at closing to the mortgage lender are tax deductible. So when getting your paperwork together at the end of the year to do your taxes, make a copy of your settlement papers as well.
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