|
Prepayment penalties on a mortgage refinancing
Dear Tax Talk:
I currently have an 11.78 percent interest rate
on my mortgage of $135,000 and a prepayment penalty of six months.
If I go ahead and refinance and add the costs to my mortgage, would
the penalty also be tax deductible?
Kathy
Dear Kathy:
With such a high interest rate, it's obvious that you need to refinance
if you intend to remain in your current home.
Generally, a prepayment penalty is deductible as interest
in the year paid. However, since you are not actually paying the
prepayment penalty, but rather borrowing the additional funds through
the refinance, you're not allowed the deduction.
I recommend that in order to secure the interest
deduction that you go ahead and pay the prepayment penalty out of
your own funds, that is, write a separate check. If you want to
borrow additional money on the refinance, you can borrow up to an
additional $100,000 and deduct the interest.
-- Posted: Nov. 1, 2001
Bankrate.com writers base their answers on our
editorial content and advice of financial professionals. We make
no claims or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content,
advice and answers are intended only to assist you with your financial
decisions. However, by its nature such information is broad in scope.
Your financial situation is unique, and our content, advice and
answers may not be appropriate for your situation. Accordingly,
we recommend that you get different opinions and seek the advice
of your accountant and other financial advisers before making any
final decisions or implementing any financial or investment strategy.
|
