Mortgage Loans: What You Should Know Before Filing In 2022

Buying a home is never expensive. If you know the right way, it will help you choose the right interest deduction. You might be able to take advantage of the mortgage interest deduction to lower your tax bill. Here’s how a mortgage interest deduction is made on a housing loan.

What is the mortgage interest deduction?

If you have an existing housing loan, the mortgage interest deduction allows you to reduce your taxable income by the amount of interest paid. Along with all expenses such as mortgage insurance premiums and points, The deduction applies only to the interest on your mortgage, not the principal, and to claim it, you need to itemize your deductions. You can check it with a home loan interest calculator.

What qualifies as mortgage interest?

• Any rate of interest that you pay on your home is qualified as mortgage interest. The property must include all the activities like sleeping, eating, cooking; it can be a home, mobile home, boat, or any recreational vehicle.

• interest on a second home you don’t rent out. If you do not rent out a property for a certain period of the year, you will need to meet certain guidelines. You can deduct the rate of interest if you used it for your own use for more than 14 days or more than 10% of the time it is rented out. Be sure to read up on all the tax deductions for a rental property.

• Most of the mortgage insurance premiums for the tax year 2020 are deductible if your gross income is more than 109,000. If you are filing income tax yourself, you cannot deduct mortgage insurance costs.

• If you are late on any kind of payment, you need to pay an extra fee that is charged.

• If you were charged a prepayment penalty for paying your mortgage loan earlier than the loan tenure, you can deduct this amount for tax benefits. 

• If you paid points to lower your mortgage interest rate, you can deduct a portion of these that applies to the individual filing year.

• If you have taken any house equity line of credit or home equity loan to pay for home renovation, the rate of interest that you pay on the amount to upgrade your property will be higher.

What is not deductible on mortgage loans?

• Interest on a mortgage for a third or fourth home

• Any interest in a reverse mortgage?

• Homeowners' insurance

• Appraisal fees

• Notary fees

• Closing costs or down payment money

• Extra payments made toward the principal

Wrapping up

Use a home loan interest calculator to choose the best home loan interest rate to keep your loan affordable. It will help you choose an affordable home loan for the best results.