On April 1, year 1, Mary borrowed $200,000 to refinance the original mortgage on her principal residence. Mary paid 3 points to reduce her interest rate from 6 percent to 5 percent. The loan is for a 30-year period. How much can Mary deduct in year 1 for her points paid?

Question

Quizplus · Accepted Answer

When refinancing a mortgage, points paid must be amortized over the life of the loan. Mary paid $6,000 in points ($200,000 x 3%). The loan term is 30 years, so the annual deduction is $6,000 / 30 = $200. Since the loan started on April 1, only 9 months of interest can be deducted in year 1: $200 x (9/12) = $150.

On April 1, Year 1, Mary Borrowed $200,000 to Refinance