Any time I get into a conversation with someone about mortgage, whether they are my client or someone just talking about a past or future loan, at some point I feel the responsibility to say, “be careful while you are talking with people, inside or outside the boundaries of the industry, and do not assume you know what simple mortgage terms mean”. Reason being, shifty characters target those terms in this industry to “pull the wool” over your eyes.
John Cannata of Legacy Texas Mortgage makes some great “points”, pardon the pun, about assuming the meanings of different mortgage terms in relation to your benefits in a tax deductible opportunity. Lets take a look at Points and Origination fees explained by John,
In today’s market, the Loan Origination is more often the fee paid to the lender/loan originator for doing business with that company. The “Discount Point” is typically the fee that is applied towards getting a “below PAR” interest rate. In essence, paying a fee specifically to lower the rate from XXX to XXX. This is typically called a Discount Point or Discount Fee.
According to the IRS Site, a ‘POINT’ is defined as:
The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points.
As you can see, a POINT could be called many things. The first thing you ask your Loan Originator is ‘Does this CHARGE (no matter what the name) Lower The Interest Rate?’. If the answer is YES, then this is step one to writing off this charge on your taxes. Why? Because the fee is a direct result of a Lower Interest Rate. If the charge is just a charge paid to the Originator, then the fee is NOT deductible. You can not always tell by just looking at the Fees Breakdown.
Be sure to ask questions, and then ask questions about those questions…if you know what I mean. Do not assume anything when juggling mortgage terms.
Check with me if you have any concerns.
John Cannata
Thanks for the shoutout Brad. Im sure you receive these questions like I do, and its important that people understand all of the facts. Too many wrong assumptions can be bad.