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The holidays have passed, and a new year has begun – which means that tax time is right around the corner.  If you are a Colorado homeowner, this is also the time of year when owning your own home really pays off.

There are a number of tax advantages and tax breaks for homeowners.  For example, if you own your own home you can:

1. Deduct the interest you pay on the mortgage for your primary place of residence.  This means a sizeable tax deduction, particularly in the early years of your mortgage, when your payments are applied primarily to the interest, rather than the principle (the amount you borrowed to buy your home).  The amount of interest you pay throughout the year is used to lower your taxable income on that year’s returns, in turn lowering the amount you pay in taxes.  For example, during the first few years of a $200,000 home loan, you might be able to lower your taxable income by as much as $14,000.

2. Deduct the interest you pay on the mortgage for your second home.  The home loan interest deduction doesn’t apply to just your primary place of residence: You can also deduct the interest paid on a second home, or a vacation home.  In places like Colorado, where many mountain towns and popular ski resorts boast thriving second home markets, this deduction is a big deal for homeowners.

3. Deduct the real estate taxes you pay on your home(s).  Every year, homeowners are required to pay property taxes on their homes.  Just like the interest paid on your loan, these taxes can be deducted on your tax return every year, lowering your taxable income.

Taking these deductions will require you to itemize, which will make your tax returns a little more complicated.  However, as a homeowner your itemized deductions will most likely end up being far more than the standard deduction, making it well worth your while to do so.  For a couple of sample scenarios, please see this article on AllLaw.com: The Tax Benefits of Home Owenrship.

If you are like most people, you probably see doing your taxes as an unfortunate chore, at best.  Owning a home turns tax time into a more satisfying experience, because you get to see how much money you’ve actually saved by owning your own home.

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Just when you thought the Federal Reserve was done tinkering with the interest rates, they’ve gone and done it again: On December 11th, the Feds cut interest rates a third time.

Like last time, this rate cut lowered the short-term interest rate only a quarter of a percent.  However, since the first rate cut back in September lowered this rate a half-percent, the rate is now at 4.25 percent – exactly one percentage point lower than it was several months ago.

Also like last time (and the time before), the Feds cut the discount rate, which basically means that banks can borrow from the Federal Reserve at a lower interest rate.  After another quarter-point cut, the discount rate is currently 4.75, also exactly one percentage point lower than it started before the rate cuts this fall.

This may seem like a lot of mumbo-jumbo, but it is indeed good news for Colorado homebuyers.  Although experts doubted as to whether the initial half-percent cut would help consumers very much, there is no doubt that consumers will benefit from rates being a full percentage point lower.  With interest rates at 4.25, you can save a lot not only on monthly payments, but also on the amount you would have paid over the life of your mortgage.

The rate cut also benefits Colorado homeowners.  If you are interested in refinancing your home, perhaps to get a better rate or use the equity to make some home improvements, keep a close eye on the rates – but don’t wait too long, or they may go up again.

One other, and sometimes overlooked, way that the rate can benefit Colorado real estate owners: Some cities and neighborhood associations offer residents special loans for home improvements.  These loans may offer low or no closing costs, and are typically offered at a set rate that isn’t much higher than the rates set by the Federal Reserve.

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According to an article on MSNBC.com, mortgage rates fell this week to 6.10 percent.  Rates this low haven’t been seen in more than two years.

Another article in The Denver Post reported a similar drop in mortgage rates last week: According to Freddie Mac, between the second and third weeks of November mortgage rates fell from an average of 6.24 percent to an average of 6.20 percent.

What does this mean for homebuyers in Colorado?  For one thing, if you buy a house or refinance a loan at this time, your savings are huge.  Not only does a lower mortgage rate mean lower monthly payments, it also means less money paid over the long run.  Even a four-thousandths of a percent less can save you thousands over the life of a 30-year loan.

And if mortgage rates keep falling, it could mean even greater savings for those buying or refinancing Colorado homes.

Finally, low mortgage rates could help boost the real estate market.  New homes sales in October actually rose 1.7 percent; falling mortgage rates could encourage home sales to increase even more.

These advantages could combine for a really great deal for Colorado homebuyers.  If you buy a home when 1) mortgage rates are low and 2) a buyer’s market enables you to get your home for less than fair market value, you end up with double savings!

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On September 18th, barely a month and a half ago, the Federal Reserve lowered two interest rates by half a percent each: The overnight lending rate was cut to 4.75 percent, and the discount lending rate was cut to 5.25 percent.

At the time, the Feds and other experts voiced concerns that while the lower interest rates would help ease the depression in the housing market, it could also speed inflation.  Therefore, the interest rate cuts, at half a percent each, were intended to be modest.

Apparently, though, the Feds aren’t finished.  On October 31st, both interest rates were cut again, this time by a quarter percent each: The overnight lending rate dropped to 4.5 percent, and the discount lending rate dropped to 5 percent.

According to the Feds’ official statement, the economy has recovered somewhat in recent months; the interest rate cut is intended to maintain economic growth by helping the housing market to recover.  However, the official report also notes that inflation is still a concern.

Since experts predicted the last interest rates cut would have little effect on consumer loans, the same would seem to be true of this cut, particularly because the difference (a quarter percent) is even smaller.  However, it is worth noting that the Feds intended the cut to counteract the downward trend of the housing market, which means that homebuyers should still benefit.

In fact, homebuyers have a unique advantage right now.  With the second cut in less than two months, interest rates are now as low as they were about two years ago.  At the same time, housing prices are down: According to the New York Times, U.S. homebuyers are paying on average 5 percent less than they were a year ago.

In other words, right now homebuyers pay less on property and on interest.  Sounds like a good thing to take advantage of, doesn’t it?

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On September 18^th, the Federal Reserve finally did what many of us have been waiting and hoping for: They lowered interest rates. An article in the New York Times reported that two different rates have been cut by half a percent each: The overnight lending rate, which has more of an effect on home buyers, is now 4.75 percent. The other rate cut allows banks to get emergency loans at a reduced rate, as well: 5.25 percent.

The rate cut, which is the first in four years, reflects widespread concern regarding the slump in the housing market. Although recent studies of the Denver Metro real estate market have shown that more expensive homes are not as affected by the slump, many people are still concerned about the possibility of a recession. This threat of an impending recession most certainly fueled the Federal Reserve’s decision to cut interest rates, despite the concerns that the move would encourage inflation.

Unfortunately, the New York Times article predicts that the rate cut will not be as much of a boon for buyers as you might think. The nationwide increase in foreclosures has many people concerned about current lending practices, which in turn has lenders nervous about federal intervention and restrictions. As a result, many lenders have recently returned to more conservative practices.

This doesn’t mean that the rate cut was a pointless move, of course. For many homebuyers, the Federal Reserve’s decision will facilitate the lower interest rates – and, ultimately, more manageable monthly payments – that will enable them to get into (or refinance) the house of their dreams.

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Undoubtedly, within the last few years, we’ve all heard radio or television commercials beckoning us to refinance, refinance, refinance.  Almost to the speed of a used car advertisement.  When interest rates started plummeting around seven years ago, many of us jumped on the bandwagon and gave our favorite local mortgage broker a call to cash in.  To be fair, the majority of us enjoyed a monthly windfall by taking advantage of those lower rates.  However, with new housing stagnant and the economy waffling, it would seem that today this phenomenon is beyond its prime.  Or is it?  Certainly, there are a few stragglers with 10% or greater interest rates from years ago that have finally wised up, but what about the rest? 

Perhaps some of the consumer confusion about refinancing today hovers around closing costs.  Call me crazy, but it seems like more and more companies are claiming “no closing costs” whatsoever.  Is this deal too good to be true?  Are we succumbing to some other hidden fee or cost when we agree to one of these deals?  More often than not, the answer to these common questions is yes.   Most trustworthy mortgage brokers will tell you that there is really no such thing as zero closing costs.  If you think about the different parties involved in a refinance, this conclusion makes sense.  For example, who will be paying the lender (bank employees), the title company, the appraiser, or the mortgage broker for their services when all is said and done?  Clearly, they won’t be working for free!  Simply put, if you’re not paying these fees at closing with a check, you’ll absorb them through a higher interest rate or a larger loan amount.

Believe it or not, there is a happy ending to this story.  If you spend a little time shopping around and educating yourself on some of the different costs, you may be able to locate a few good deals.  They might not be “phenomenal”, but at least you’ll have the assurance that you’ve found the best option to suit your particular needs.  If the thought of comparing good faith estimates is more than “light reading” for you, take your time and find a mortgage broker you can trust to explain the options.  If you have trouble finding someone reputable, talk to your realtor; they will certainly be able to point you in the right direction!   

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