Important news before you get a HELOC

 Owner-occupied, Regulations  Comments Off on Important news before you get a HELOC
Feb 052018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

With rising home prices, you may be eyeing your increasing home equity with plans for remodeling or some other important need. However, before you do, take a few minutes to consider how the changes to the mortgage interest deduction might affect your tax bill.

It’s been well-reported that the new tax law reduces the max mortgage that qualifies for the mortgage interest deduction from $1m to $750k. For most of us, that’s not a big deal. The bigger deal is that starting this year, interest paid on a home equity line of credit (HELOC) no longer will be eligible for the deduction.

When you take cash out of your home, you have a couple options if you have an existing first mortgage. You can refinance the first mortgage adding to the balance the amount of cash you want, a so-called cash-out refinance, or you can use a HELOC, which typically is a 2nd lien on your home that leaves the existing first mortgage in place. Many folks prefer a HELOC because they have a really low rate for their existing first mortgage.

With the new tax law, the interest paid on a cash-out refinance is still eligible for the mortgage interest deduction. The interest paid on a HELOC is not.

So, before you decide which option to use, consider whether getting a new first mortgage would allow you to itemize your deductions. If it does, then you may find it’s a better financial decision to cash-out refinance your existing mortgage even though you may end up with a slightly higher interest rate.

Tax plan shouldn’t stop you from buying a home

 Owner-occupied, Residential Mortgage  Comments Off on Tax plan shouldn’t stop you from buying a home
Nov 272017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The tax reform plans currently being considered in Washington could change the mortgage interest deduction, and housing industry leaders are asserting that the change is going to decimate homebuying. Let’s see if the facts support their outrage.

Currently, only 21% of taxpayers use the mortgage interest deduction, and most reside in coastal states where home prices and/or property taxes are high.

If the House tax reform plan were to become law, the loan amount eligible for the mortgage interest deduction would drop from $1 million to $500k, and it would reduce the maximum deduction for property taxes to $10k.

Let’s consider the case of couple with a $300k mortgage. In the first year, they would pay roughly $13k in mortgage interest. If we assume their yearly property tax bill is $7k, they probably would be much better off under the House tax plan. Instead of a $20k deduction, they would get a $24k standard deduction. And remember that mortgage interest declines over the life of the loan, so the advantage of the new plan would increase each year.

Given that the median home price in TX is $269k, most TX homebuyers clearly would be better off under the new plan. Those who would be worse off will be folks who have mortgages greater than $500k and folks in areas with very high property taxes. Thus, any effects to the TX housing industry would be limited to high-end communities.