The end of 2013 is near and we’re already looking at 2014. Doesn’t it seem like yesterday when you were preparing the Thanksgiving turkey….in 2012! Most of us marvel at how time flies and as 2013 comes to an end, there are a few implications as it relates to a VA loan.
Discount points, or simply “points” are expressed as a percentage of the loan amount and is designed to lower a borrower’s interest rate. VA lenders offer a spread of available interest rates for each loan program based upon whether or not the borrower decides to pay a point. One point on a $200,000 loan amount is $2,000 and will reduce the interest rate on a 30 year VA loan by about one-quarter of one percent. If the rate is 4.50 percent with no points, the principal and interest payment on a $200,000 VA loan is $1,013. By paying one point, the rate will drop to about 4.25 percent, dropping the payment to $983.
Paying a point or not paying a point is up to you and your loan officer. But discount points for a VA purchase loan are a tax deductible expense for those who itemize their deductions. If you close your VA loan in 2013 you can deduct that $2,000 point from your taxable income. If you close in January 2014, you can still deduct the point but on next year’s return.
If you’re refinancing, you can still deduct the point but only over the life of the loan, not in the year paid. For example, if you pay $2,000 for a point to refinance a 30 year loan, you can deduct 1/30th of $2,000, or $66.67 each year you have the mortgage. Hardly as much of an impact. But if you are buying a home and you have the option of closing this year or next, you can take advantage of the point deduction now instead of later.