11-14-2012, 04:33 PM
davester wrote:
Also, you should never pay closing costs on a refi, because you can't deduct them. Get a "no cost" loan where the closing costs are wrapped into the interest rate so that you pay a slightly higher rate. It only makes sense to go for a lower rate loan with high closing costs when you are doing a new purchase.
My understanding is that you can deduct the points of a new loan in the year that the loan originated. If you refinance and pay points, that must be spread over the life of the loan.
I don't think the closing costs are ever tax deductible, except for a few government fees. In other words, you can't deduct title insurance, escrow, etc for a principal residence. If you are buying investment property, you can offset rental income with these expenses.
That being said, I don't think adding the total payments up give an accurate picture of the true cost of financing because it doesn't factor the time value of money.
The true cost of the loan is simply that you are now borrowing X dollars at Y percent. For a hypothetical $100 loan, I'd much rather have a 100-year loan at 2% than a 1-year loan at 20%. In the former, I'm paying $200 in total interest whereas in the later I'm only paying $20.
If your objective is to pay off the house as quickly as possible, you should get the lowest rate and apply the savings to the mortgage.