Origination charge on personal residence refi

[MDCPA]

TP refinanced personal residence in 2013. Origination charge (points) is shown on page 2 of HUD-1. As I understand it normally this amount would be amortized over the life of the loan, BUT what happens when the amount is negative. It seems the lender gives a credit against the charge based upon the actual interest rate selected by the TP. So I have a negative amount showing as origination charges - does it get offset against interest expense fully in 2013 - or should you (could you) amortize over loan life and reduce interest expense each year by a portion? I have verified that this amount is not included in the amount on the 1098.

Thanks for your help.

[JohnH]

I've been ignoring the negative entry. The deduction is taken via the normal home mortgage interest deduction as the loan is paid off, so there's nothing to adjust on the tax return either way in conjunction with the refi.

I came to that conclusion after sitting and staring at a HUD-1 for a half hour or so when I first ran across this entry. I would like to hear if anyone has another view of how to should be handled. (Hopefully that won't entail amended returns for 3 or 4 of my clients.)

[Abby Normal]

I think a negative orig fee just offsets other nondeductible closing costs. Ignore.

[joanmcq]

I've been ignoring the reduction and not amortizing the fees, since they weren't paid.

[JohnH]

My thinking was that they accepted a slightly higher interest rate in exchange for not having to pay any (or as many) closing costs. As such, they are deducting the "negative points" via their normal interest deduction. Net result is exactly the same as if they had paid points at closing and then amortized them over the life of the loan.

I'm sure the lenders are doing this to in some manner benefit the borrower. They are always looking out for the best interests of their customers. :)

[MDCPA]

Thanks guys for the advice

[joanmcq]

And so they can advertise "no closing costs!".