Posts Tagged ‘second mortgage’

HELOC interest potentially tax deductible

February 27, 2018

A clarification has been issued by the Internal Revenue Service about the deductibility of interest that is paid on home-equity lines.

Under the Republican tax law, joint taxpayers can deduct interest on home loans. This includes first mortgages used to secure primary and secondary homes. OK. Sounds right. Nothing unusual so far…

What caused a ruckus was the suspension of the interest deduction for home-equity loans, home-equity lines of credit and second mortgages from 2018 until 2026.

But an exception exists!

WHAT?? Really? Tell me more!

The IRS clarified the new tax law in response to many questions submitted to the IRS by taxpayers and tax professionals. According to IR-2018-32 issued Tuesday by the agency, when HELs & HELOCs are utilized to buy, build or substantially improve the residential properties used as security for the loans, the interest is tax deductible. An example of a deductible expense is when the proceeds from the loan are used to build an addition to an existing home. On the other hand, if the proceeds from lines of credit are utilized to pay off personal expenses, no deduction is allowed.

As was the case under the prior law, the equity line loan must be secured by a primary residence or second home, not exceed the cost of the home, and meet other requirements.

How to proceed? Contact your tax professional. While the IRS provided the clarification, it also said “meet other requirements.” The IRS also did not distinguish how to apply if portions of the equity line was used. For example, what if someone has a $100,000 equity line. They use $80,000 for an addition to the home, but $20,000 to pay off credit card debt.

While this is welcome news, its application can still be tricky. Contact your tax professional today to find out more. If you need a referral to a tax professional, do let me know!

Coming Soon: “HARP 2 – The Mulligan”*

November 17, 2011

  • “one of the most anticipated sequels of 2011” – says Clay Jeffreys of The Mortgage Blog
  • “it’s about time” – says a frustrated homeowner
* Note the program is still called “HARP,” but I’m referring to it as “HARP 2” for comedic relief and clarity’s sake

Unlike some movie sequels that get filmed (really, we needed a Spy Kids 4?!?), the Homes Affordable Refinance Program, known as HARP, needed a sequel. Why? Just like Rebook realized they needed to make more “office linebacker” commercials after its popularity from a past Superbowl, HARP needed some revisions to be more readily available to homeowners so more people can enjoy it!

Reebok knew what they were doing!

The original intent of HARP was to allow borrowers who were somewhat underwater refinance their mortgage into a lower rate. On paper, it sounded great. Sadly, unforeseen issues arose that didn’t allow the program to be as effective as the government hoped it would be.

What changes should one expect with the sequel “HARP 2 – The Mulligan”? There are a few major changes, but good portions of the HARP program remain the same. You can read about the program from my recent posts here (a recent “question and answer” session) and here (an overview when the program was first announced). Changes include:

  • No maximum loan to value limit. Once this part begins (to start in 2012), homeowners can be 200 or 300% underwater and still refinance to a loan without paying mortgage insurance if there is not mortgage insurance on the current loan.
  • Up to 125% loan to value ratio to be allowed with any mortgage company. This should get underway starting in December. Presently only your current mortgage servicer was allowed to go that high, which limited consumer’s ability to shop for the best interest rate.
  • Homeowners can qualify even if they are currently unemployed AND no income verification is required if the previous loan was a stated income loan as long as…
  • Homeowners have no late mortgage payments in the last 6 months, and only one late mortgage payment of 30 days in the last 7-12 months. In other words, if you are paying on time, you could refinance without income verification.
  • Private Mortgage Insurance (PMI) to be transferred to the new loan as long as it is not Lender-Paid PMI

As long as Fannie Mae or Freddie Mac own your mortgage, you got the mortgage prior to the end of February 2009, and you are current with the payments, there is a good chance you’ll qualify for new and improved HARP 2 loan program.

Some questions you may be thinking:

  • How do I know if Fannie Mae or Freddie Mac own my mortgage? Great question! You can use their online lookup tools. Use this link for Fannie Mae. Try this link for Freddie Mac.
  • How do I get started? If the property (primary residence, vacation home or investment property) is in the state of Georgia, I can help you get started. Contact me and we will take it from there.

Remember HARP 2 is not here yet, but it is coming soon. Refinance applications for the updated program can start in December, but some parts may not be available until 2012. Stay tuned to The Mortgage Blog for updates on all aspects HARP 2 availability in the coming weeks!

125% LTV Refinance Program Available

March 10, 2010

The Making Home Affordable Program created a program allowing borrowers to refinance even when the value of their home has decreased in value.  The allowable loan-to-value ratio for the program is 125% LTV, but up until now, most lenders were only offering the product up to 105% loan-to-value. 

Good news!! (drum roll) . . . . We can offer this program up to the full allowable loan-to-value of 125%. 

So how do you find out if YOU might qualify?

Question # 1 — Do you pay Private Mortgage Insurance (PMI)?

If you pay PMI on your current mortgage, while the program “allows” for your mortgage insurance company to adjust your insurance to accommodate for the new program (and the 125% LTV), in reality, mortgage insurers (or PMI companies) are not cooperating with the program.  So, if you pay PMI, unfortunately, I can’t help you.

If you do NOT pay Private Mortgage Insurance (PMI) . . .

Question # 2 — Do you have a 2nd mortgage?

If you have a 2nd mortgage, you can qualify for the program, but you can NOT pay off the 2nd mortgage as part of the new refinance.  The only option would be to have the 2nd mortgage subordinate to the new mortgage.  And, if you are already in a negative equity situation (and needing the 125% LTV guide of the program), there is a good chance that the 2nd mortgage company will not approve your subordination request.  For more information on 2nd mortgage subordinations and why 2nd mortgages can be a refinance road-block, read my post here.

If you do NOT pay PMI and you do NOT have a 2nd mortgage . . .

Question # 3 — If your loan currently owned by Fannie Mae or Freddie Mac?

To check to see if your loan is owned by Fannie Mae, you can use their loan lookup tool online.  NOTE:  when you hit “get results” the top of the screen will appear as if the form has not been submitted; you need to scroll down to see the results of the search.

To check to see if your loan is owned by Freddie Mac, you can use their loan lookup tool online.

If you do NOT pay PMI, and you do NOT have a 2nd mortgage, and if your loan IS owned by either Fannie Mae or Freddie Mac . . .

You are eligible and I can help.

Call me and let’s talk through the details, options, your qualifications, etc.  Hope to hear from you soon!  Soon, as in, before mortgage rates go up April 1st (my professional “guess” is that interest rates will be at 5.625% on April 1st, 2010 . . . I know that will be April fool’s Day, but 5.625% and rising interest rates is nothing to joke about).

Your 2nd Mortgage Lender Doesn’t Hate You.

March 9, 2010

A lot of my clients have been calling lately about their 2nd mortgages and home equity lines of credit.  Lenders have been freezing credit lines and reducing high credit limits, decreasing the available credit to homeowners and making a lot of people quite upset in the process. 

Just to clear up a common misconception, a home equity line of credit IS a second mortgage, a type of second mortgage.  A handful of years ago, lenders realized that the term “2nd mortgage” was much less appealing than “line of credit” so the marketing term for a revolving credit line that is lien’d against a property in 2nd position (the house serves as collateral for the repayment of the debt), is just that, a mortgage in second position (2nd mortgage).  This is important in understanding and explaining, why in fact, your second mortgage lender does not hate you.

First, let’s talk about lowering credit limits.  Are lenders allowed to do this?  And, if they are allowed to lower credit limits, why are they lowering credit line amounts?

First — is the lender allowed to lower the high credit limit on your second mortgage?  Yes, probably.  You will need to read through your closing paperwork to find your “Home Equity Line Agreement” or “Line of Credit Agreement” (or something similar) and look for a heading titled Suspension or Reduction of Credit Line.  Under that section, you will likely see something similar to the following language:

Suspension or Reduction of Credit Line.  Bank can refuse to make additional extensions of credit or reduce your Line if you breach a material obligation of this Agreement in that:  The value of your Dwelling securing your Line declines significantly below its present appraised value for purposes of the Credit line.”

The phrase “declines significantly below it’s present appraised value” is up for interpretation, but, in a nervous mortgage market and a declining value real estate market, any decline in value means big risk for the 2nd mortgage lender.  Here is an example:  Let’s assume you did an 80-15-5 to purchase your home for $300,000.  Your loan amounts were for 80% = $240,000 and for 15% = $45,000 and put down 5%.  Similarly, you could assume that you did a 95% LTV (loan to value ratio) 2nd mortgage at some point after closing for home improvements, emergency cash reserve, etc.  If your 2nd mortgage was a line of credit, the outstanding balance is probably about the same, around $45,000 (most credit lines have monthly payments of interest only).   If you home has decreased in value by 10% (the Atlanta market data from 2009 shows deceases in home values in the range of 8 to 20%), your home is now valued at only $270,000.  After 3 years, you have paid down your first mortgage to $230,600 . .  so the 1st mortgage and the 2nd mortgage total $230,600 + $45,000 = $275,600 — BUT, is only worth $270,000.  If your loan goes in to default and the property to foreclosure, the 2nd mortgage company is SURE to lose money — and probably quite a lot.

So that leads us to the second question (although I think I may have already answered it): why are second mortgage lenders lowering and freezing credit lines?  Why?  Because they don’t want to lose money.  And, by “lose money” I mean, “they don’t want to lose MORE money than what they are already losing on all of the foreclosed, short-sale and distressed sale properties.”  They don’t want to lend more money than what can be expected to be recouped in the case of default.  It’s business . . . not personal.   

It’s not that they don’t like you, in fact, as you continue to make your monthly payments (assuming that you are), they like you more and more as each month passes. 

It’s not you . . .

It’s that they don’t like your collateral (the value of your house), at least not as much as they used to (based on original appraisal).