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After refinancing home mortgage

My credit score went down 51 points after refinancing my home mortgage. Is this to be expected?

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After refinancing home mortgage

Some level of decline is to be expected, particularly if several hard inquiries were made in the process.

 

You should review your credit reports, which you can get free from the site below, for accuracy.

 

https://www.annualcreditreport.com/index.action

 

You might also want to check your credit score with Turbo --> https://turbo.intuit.com/

 

The Experian site below has further information.

 

https://www.experian.com/blogs/ask-experian/does-refinancing-a-personal-loan-hurt-your-credit-score/

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6 Replies

After refinancing home mortgage

Some level of decline is to be expected, particularly if several hard inquiries were made in the process.

 

You should review your credit reports, which you can get free from the site below, for accuracy.

 

https://www.annualcreditreport.com/index.action

 

You might also want to check your credit score with Turbo --> https://turbo.intuit.com/

 

The Experian site below has further information.

 

https://www.experian.com/blogs/ask-experian/does-refinancing-a-personal-loan-hurt-your-credit-score/

After refinancing home mortgage

That's completely normal.  Remember that your credit score is just a crude way of evaluating your credit worthiness for your next loan.  Presumably you aren't applying for a new loan right after refinancing.

 

Refinancing does a number of things that all will lower your score, at least temporarily:

  • one or more "hard" credit checks on your file
  • opening a new loan and increasing your total debt
  • paying off and closing an old loan, because it may decrease the average length of your credit history, and it also decreases your apparent borrowing power.

The hard credit checks will drop off your report in 2 years.  As you make payments on the new loan, it will get older (longer credit history= good), your total debt will go down (good) and your total debt as a percentage of your borrowing ability will go down (good).

 

(Somewhat bizarrely, having a $100,00 mortgage balance on a loan that started out at $150,000 a few years ago, is better for your score than paying off that loan and replacing it with a brand new $100,000 loan.)

Wemason1
New Member

After refinancing home mortgage

I refinanced my Seller financed- financed mortgage. No 1098 but a 1099-Int pink form. That confused the IRS  and one year I received a  $5000:- balance due, penalties and interest. Had to write a letter to refute all charges! IRS removed the charges, without an explanation. Of course I was close to fainting opening that letter..

When I first had the Seller-financed loan in 2016 I had no problem filling in the information and it ended up on Schedule A , with all of the information for the lender and continued until 2020.

Now I am getting all tangled up. There is a Form 1098 for the new loan. Then there is the pink Form 1099-Int and the two do not get along. The worksheets for Mortgage interest get confusing between the Form 1098 information and the 1099-Int. Would be very grateful if someone could guide me through this.

Thank you very much!

After refinancing home mortgage


@Wemason1 wrote:

I refinanced my Seller financed- financed mortgage. No 1098 but a 1099-Int pink form. That confused the IRS  and one year I received a  $5000:- balance due, penalties and interest. Had to write a letter to refute all charges! IRS removed the charges, without an explanation. Of course I was close to fainting opening that letter..

When I first had the Seller-financed loan in 2016 I had no problem filling in the information and it ended up on Schedule A , with all of the information for the lender and continued until 2020.

Now I am getting all tangled up. There is a Form 1098 for the new loan. Then there is the pink Form 1099-Int and the two do not get along. The worksheets for Mortgage interest get confusing between the Form 1098 information and the 1099-Int. Would be very grateful if someone could guide me through this.

Thank you very much!


I don't understand your situation.  A 1099-INT is for interest income you received.  A 1098 is for mortgage interest you paid.  Who holds your loan?  Who issued the 1099-INT?  Did you actually receive interest income?  Who issued the 1098?

execac
Returning Member

After refinancing home mortgage

Seems like this could become a sticky wicket.  For a seller-financed mortgage, I believe you would need proof that you paid the interest (Form 1098 from the seller?) and the seller would be liable for taxes on the earned interest (Form 1099 from the payer?).  If it were me, I would get together with the IRS and have them help you straighten out whatever you may have done inadvertently.  The IRS is not a bunch of monsters out to screw the taxpayers.  They truly are there to do their job and assist people when appropriate.  Good luck!

 

p.s.- There may even be some reward involved if the seller was trying to skirt the rules for a seller-financed deal.  For his sake, I would hope he was just as confused as you.

RaifH
Expert Alumni

After refinancing home mortgage

Form 1098 would be reported to as a tax deduction for the mortgage interest you paid to the new lender. This is reported in TurboTax in the Federal > Deductions & Credits section of your return, scroll down to Your Home and click Revisit/Start next to Mortgage Interest and Refinancing (Form 1098) section.

 

Your new lender may also have issued a 1099-INT to record interest paid to you. This is income and must be reported on your return. They may have paid you interest if they hold money for you in escrow to pay your property taxes and insurance. This should be a relatively small amount. You would report this in Federal > Wages & Income > Interest and Dividends > Interest on 1099-INT.

 

If you received a 1099-INT from your former seller-financed loan, as others have said, that may be sent in error and you will have to resolve that with the issuer. 

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