Wednesday, November 7, 2012

Doing Some Research

After writing my last update, I decided I would take it upon myself to do some research on tax write-offs related the home. I was particularly interested in interest on a mortgage. When we bought our home, I was told by our mortgage officer we could write off the interest on the loan each month. They should send us a form 1098 in the mail come new year to let us know the interest that was accrued on our loan. We will definitely be able to write off our interest this year, but the tax breaks are set to expire at the start of 2013 apparently. This was a big incentive for us to buy a home in addition to the low mortgage rates which we locked in at 3.75% (will not change; fixed, woo-hoo!). After reviewing a couple of websites, it seems that neither presidential nominee (and now President Obama) was looking to extend the tax break. As we near this "fiscal cliff", I am worried about the prospect of having this break renewed. I really do not mind paying taxes. I appreciate what they go towards such as schools, parks, roads, and plenty other privileges. But, I do mind when our tax dollars are not spent well. I do not like paying legal fees for lawsuits within my county or country and plenty of other topics that would be better-suited for another blog. I am worried that if this tax break is not renewed, we will have another fall in the housing market. I do not think it has recovered enough to get rid of incentives. In Atlanta, there are still a number of foreclosures, and homes are just starting to sell here. Without some type of reward, people will be less likely to buy a home. For us, we would have never bought a home if we knew would not have been able to write off the interest on our home. 

In addition, I discovered we are also able to write off the PMI on our loan. If you do not know what PMI is, it is abbreviated for Private Mortgage Insurance. Homeowners who are not able to put down the conventional 20% on a home will have to get PMI. It protects the bank in case you default on your loan so they do not lose their money. Banks get the great end of the deal because the homeowner has to pay for it (we pay nearly $200 a month for this). So, this PMI will stick around until you have paid roughly 20% of the  loan premium, which, on average, is 5 years for the homeowner. At that point, the bank is required by law to automatically cancel the PMI. It is a major pain to have this PMI. It is an added expense that you will never get back. It would seem to make sense if the bank did not charge this PMI fee, their mortgage holders would have an easier time making payments on their loans. I am not sure they understand how much $200 a month is on top of the mortgage. However, being able to write this off is going to be nice. I could not find any articles on this break expiring anytime soon. I sure hope it does not!

So, after this research, being able to write $8,400 from the interest and $2,400 from the PMI will decrease our taxable income a ton! I will be so looking forward to paying off some of this debt with that money. It should be a sizable chunk we get back. If you want to check out a good article on the mortgage interest, here is the article

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