Refinancing your mortgage makes sense, despite tax deduction
Q. Please settle an argument between me and my husband. I want to refinance our home mortgage loan.
Our current rate is 7.5 percent for 11 more years. We have a chance to refinance at 4 percent with no fees. My husband says we don't have many deductions and he uses our interest as a deduction on our taxes. I say if we refinance, we have more money in our pockets. Am I right?
A. Yes, you are.
I don't like stepping in between husband and wife, but I hate to see you spending a lot just to get a little back. For every unnecessary dollar you pay the bank in interest, the IRS credits about 28 cents off your income tax bill. Or less. You've wasted perhaps 75 cents -- besides which, as you don't have many other deductions, you might come out better by simply taking the standard deduction and not itemizing at all.
Q. We were surprised to hear we should hire a lawyer to buy a house in New York. Is this a state law that we have to?
A. Closing customs vary widely, and in some places, particularly New York and New Jersey, lawyers are routinely used for simple residential closings. Elsewhere, much of the same legal work is done by escrow agents, title companies, settlement specialists and the like.
It's best to follow the local procedure in any location. You can go without a lawyer in New York state, but that puts an extra burden on the sellers' attorney and won't help things go smoothly. And, you'll have no one legally bound to look out for your interests.
Q. My daughter bought a house and did not have a house inspection. Since moving in 23 days ago, the refrigerator/freezer broke, the microwave broke, the garbage disposal leaked, the in-ground pool liner is pulling away from the sides, the kitchen window does not open, and the oven on the gas range does not work.
I will not go into the bricks around the outdoor patio/pool, as most of them have to be regrouted or replaced, nor the coming up of the boards on the front deck. However, does she have any recourse as to having the former owner make a monetary refund or replacement for any of these things? What are her legal rights, if any? She doesn't think so, as she did not have an inspection.
A. Your daughter has a good chance of prevailing in court if she can show there was a deliberate concealing of a major defect. Not having used an inspector doesn't affect her legal rights.
But some of those problems your daughter could have seen for herself in what is known as a normally prudent inspection. That would include the bricks, the boards and the pool liner, so I don't think a judge would say she was misled about them. Things that broke after she moved in, particularly free-standing appliances, might not be considered the seller's responsibility either. That leaves the garbage disposal and the oven. I suppose she could go to small claims court and ask for repair money from the seller, but it hardly seems worth the trouble for the amount of money involved.
Q. We are looking around for a mortgage, and a couple of places offered us a choice -- we can pay more points just once at the start and have a lower interest rate. Is this a good deal? Or just to benefit the bank? Is it better to pay less points and have a higher interest rate?
A. When you ask, "Which is the best mortgage?" it's like going into a shoe store and asking, "What's your best pair of shoes?" The answer would depend on whether you're going dancing or playing basketball, whether you're a man or a woman, whether you will be wearing black or brown.
So many different mortgage plans are out there because every borrower's needs are a bit different. For your specific question about paying more or less in upfront points, the answer lies mainly in how long you expect to live in the property. It may take several years of lower monthly payments to make up for extra expense at the start, but after that, it's gravy. Again, the answer may depend on your available cash -- can you afford extra closing expenses right now? Your current and projected income may make a difference also.
There is, in other words, no one right answer for everyone; sorry.
• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.
© 2012, Creators Syndicate Inc.
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