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February 26, 2013If you manage to own a home you can take out the taxes that are paid on your mortgage interest rates and property taxes. This process is known as mortgage interest tax deduction. At this point you may have a question how much money one can save in this way? Few thousand dollars or few hundred dollars?
Let’s know from the simple calculation
Calculate the Mortgage interest tax deduction
- Try to get an info on from your mortgage lender what will be your mortgage interest rate you need to pay for the full of first year.
- Try to get the real estate agent info on what will be your property taxes you need to pay for the full of first year.
- Now add these 2 values. Resultant figure is the total Mortgage interest tax deduction for the first year.
- For instance if your first year interest is $14,500 then your property tax comes around $3,000 then your total tax deduction on the first year is $17,500.
Exact Tax Savings
- Decide on your own marginal tax bracket. Here we take 26%.
- Now take the mortgage interest tax deduction amount and multiply it with 26%. For example: $17,500 * 26 = $4, 55,000 (Exact tax savings)
What this Means
Actually you will pay around $5,460 or even less in the federal taxes as you are in your first year of your mortgage loan. When you continue with your tax payments every year you will receive this tax in the form of hefty tax return check. Apart from hefty check, you can convert this amount as your tangible monthly savings. For example if you pay around $5,460, divide this amount by 12 you will get around $455. Now ask your employer to deduct your federal tax by this small amount, thus you can increase your every month take-home percentage. Most of the home owners make use of this amount to pay off their monthly mortgage payments.
Things to consider
In the given Mortgage interest tax deduction we have used your present marginal tax bracket which is subject to get lower when your income goes up. So it will decrease the tax savings.
In the beginning your tax payment will be high due to the high current mortgage interest rates. But as the time goes by and you have finished your half of the mortgage loan interest rate you need to pay in the consecutive months will get decrease. This factor also will reduce the tax saving amount in the continuous years.
Mortgage interest rate calculator
Calculating the mortgage interest rate can be done easily using the Mortgage interest rate calculator. This tool is available online. Required information to find out the mortgage interest rate is principal amount, monthly payment and maturity period. This information will be very useful when you want to refinance your mortgage.
Current mortgage interest rates
Inflation and scarcity of credit are 2 main factors which determine the current mortgage interest rates. Supply and demand are 2 major things which determine the Real interest rates. But as the time goes by the bank will add the annual interest rate to your mortgage interest rates these interest rates are known as nominal interest rates.
You can get the current mortgage interest rate at the sites like bankrate.com.
