Closing Costs

• Most mortgage refinance loans have closing costs and FHA mortgage refinance loans are no exception. Closing costs are fees that lending institutions charge at the time you close your refinance loan. Lenders offer many different types of loan programs that have varying associated closing costs. Before closing on your FHA mortgage refinance loan, make sure you fully understand all the closing costs.
  
  

Tax Deductibility

• Fees not directly associated with the interest rate of your mortgage refinance loan are generally not tax deductible. These fees include lender's fees, appraisal fees, title search fees and origination fees. Any fee that directly affects the interest rate of your loan, however, is generally tax deductible. An example of tax deductible closing costs is mortgage points. A mortgage point is a fee paid at the time of closing to buy down the interest rate of your mortgage loan. According to "Principles of Real Estate Finance," one mortgage point equals 1 percent of the total loan amount. In addition, each point purchased typically reduces your mortgage interest rate by 3/8 percent.
  
  

FHA Rules

• Closing costs associated with a FHA refinance loan are deductible, just like closing costs associated with any other mortgage refinance loan. The FHA mortgage program aims to make home loans affordable to more people. FHA loans generally have lower associated closing costs, down payments and credit requirements than traditional mortgage loans. The interest payments on FHA mortgage loans have the same tax deductibility as interest from traditional mortgage loans.
  
  

How Do You Get Your Deductions?

• You will not receive the full benefit of tax deductions associated with closing costs in the same tax year as the refinance. You will receive a prorated tax benefit from the closing costs for the life of the loan. If the term of your mortgage loan is 30 years, you will receive an equal tax deduction of 1/30 of your closing costs for 30 years. Therefore, the actual benefit of any tax deduction associated with mortgage refinance closing costs is typically minimal.