Utah Home Mortgage Specialist

Mortgage interest on home mortgage is generally deductible.

The IRS says there are three categories of deductible home mortgage interest:
Mortgages you took out on or before October 13, 1987 (called grandfathered debt).

Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2005 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).

Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2005 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2).
Substantial profits can be sheltered when a primary residence is sold.

When a primary residence is sold, up to $500,000 in profits can be sheltered from federal taxes if married, $250,000 if single, providing the home has been used as a prime residence for two of the past five years. Generally this deduction cannot be used more than once every two years, according to the IRS.

There are also provisions which may be helpful to individuals who must sell a primary residence in less than two years. Under the 2004 safe harbor rules, individuals may be able to get some capital gains relief under certain circumstances, such as being forced to move because a job has been relocated at least 50 miles or a home that must be sold because of multiple births resulting from the same pregnancy.

Also, individuals in the Armed Forces and the Foreign Service may be entitled to special consideration under the Military Family Tax Relief Act of 2003 (MFTRA). For instance, you may have longer to take a capital gains deduction or to amend a tax return. There are other provisions under MFTRA that also may be helpful, so check with a tax professional for specifics.

Let’s be honest: April 15th is a day of reckoning, the moment when we find out what we really owe for taxes. In households nationwide wallets are drained and many who were rich on the 14th are greatly impoverished by the 16th.

But for those with real estate the load is made lighter by tax rules which encourage the ownership of homes and investment property. Especially those with home mortgages.  Such rules are not only good for homeowners, they’re also good for the country: About 20 percent of all economic activity nationwide is related to real estate, so policies which encourage real estate activity help everyone.

It seems that almost every year changes to the tax code require the production of new forms and a re-education process. That said, the real estate basics remain in place and they’re good news for buyers, sellers, borrowers and owners.

We are going to cover several tax advantages to owning real estate in the days that follow.

Everyone has been talking a lot about the Federal Tax credits available to those who are purchasing a new home. Many people are out looking for homes simply because they want to qualify for the $6500 or $8000 available from the Federal Government.

As always with taxes, nothing is ever simple or easy.  The best advise I can give is to speak with a qualified tax professional for specific advice — an enrolled agent, a CPA or an attorney who specializes in tax issues. You can also go to www.irs.gov. 

But for those of you that are just needing a few simple questions answered from a reliable source, I would like to recommend an excellent website created by the National Association of Home Builders.  The website is http://www.federalhousingtaxcredit.com/index.html.  It has tons of information about the first-time homebuyer tax credit and the repeat buyer tax credit. 

Stay tuned over the next few days.  We will review the other tax advantages to owning both primary residences and investment properties.  With the real estate market bottoming out it is a great time to look at investing in rental properties.

Take care!

Interest rates have enjoyed record lows during the last few years allowing many people to refinance and enjoy lower home mortgage payments. Now, interest rates are beginning to move in the other direction. 

Why would anyone refinance when rates are going up? With cash-out refinancing, you refinance your mortgage for more than you owe and keep the difference.

1. Pay off home equity credit lines. Most HELOC loans have variable rates that go up when the Federal Reserve raises short term interest rates. Recently, the Federal Reserve announced its first rate increase and they sent out a strong message they will continue the short term interest rate increase. Using a refinance to pay off a HELOC not only will lower your existing HELOC interest rate, but you can stop worrying about the Fed …for your second mortgage at least.

2. Consolidate your mortgages.  Unless you put 20% or more down on your home, there is a good chance you did a combination (or piggyback second mortgage) loan to avoid PMI (Private Mortgage Insurance) which is required on loans with less than a 20% down payment. Second mortgages typically carry higher interest rates and a cash-out refinance may allow you to consolidate these loans into one lower monthly payment. Even if you need to pay PMI it may be a less expensive monthly payment overall.

3. Secure A Fixed Rate Mortgage. Rates for adjustable mortgages, which are sensitive to Fed moves, may rise faster than fixed rate mortgages. Borrowers with loans close to a rate adjustment are facing an increase in monthly payments and the possibility of even higher rates down the road. Many borrowers who plan to stay in their homes are fending off the higher rates and potential future increases by refinancing into fixed rate mortgages.

4. Improve Your Home. Home Equity Lines of Credit and fixed rate second mortgage rates have been rising. A cash-out refinance can prove to be a cheaper way to finance your home improvement, especially as the cost of the improvement increases.  Improvements made after the refinance may lead to even greater increases.

While many people will no longer be interested in refinancing for a lower rate, there are many reasons to consider refinancing even as interest rates increase. If you have an existing second mortgage, need cash to consolidate credit card debt, or want to do some home improvements, refinancing your current home mortgage may be the best financial move for you. For more information regarding current rates contact me now.

Mortgage rates are rising as the markets believe the Federal Reserve will raise the interest rates higher.  Rates on 30 year mortgages are predicted to raise 0.50 to 1%  by the end of this year.  This is the highest rates we have seen in the last couple years.

Some analysts believe that new home sales will decline as the interest rates rise.  But as economic conditions improve and business activity improve we are also susecptible to inflation. Kansas City Fed President Thomas Hoenig argued at the Fed’s most recent meeting last month that the promise of low rates risks creating new bubbles in financial markets and lays the groundwork for unacceptably high inflation. He suggested that raising the federal funds rate “modestly higher” soon would lessen those risks.  But raising these rates will put pressure on home mortgage interest rates.

Leading economists are upbeat about the U.S. recovery, forecasting steady growth over the next two years as businesses grow and jobs return.  Manufacturing is improving at a slower pace.  Retail Sales have steadily increased.  Economists believe improvement in sales and profits will cause companies to put out the hiring signs relatively soon.

As jobs return, so will consumer spending, which should rise by 2.2% in 2010 and then climb 2.8% in 2011. These relatively small gains can be attributed to the fact that Americans are still feeling financially conservative.  Overall, economists believe we are on a fairly healthy growth track and there will be no double dip recession.

I am hoping the market recovery continues and we avoid more economic slowdown and inflation.