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Does rolling refinancing costs into new mortgage result in excess interest

Level 3

Several clients have refinanced their homes this year.  The new mortgage is the balance of the old loan AND the refinance costs.  This method results in a new balance that is higher than the old loan balance.  My question is:  does this method result in non-deductible mortgage interest because the new loan balance is higher than the old loan balance?  I been searching for an exception of the old balance and new balance being an exact match and can't find it.  Am I missing something or do I have to treat the refi costs as generating excess interest?

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2 Replies 2
Level 5

Many think it does.

There was a lot of discussions on this when the change went into affect.

I am encouraging taxpayers to not refinance to avoid this headache.

What do you think?  Is putting the closing costs back into the loan money that was not used to buy or improve the property?

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Level 10

In my opinion, the additional proceeds are not used to buy, build or substantially improve the home.  The repayment rules are taxpayer friendly though so it's likely only excess for a year.

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