Why is home mortgage loan considered a tax benefit ?
Jun.30, 2009 in
Mortgage
I am planning to buy a home and wanted to know why everyone thinks that home mortgage loan is tax beneficial.
Example:-
If we are paying around ,000 a year in interest+property taxes and in tax refund( 15% tax bracket) we get back around K-3K and we are happy.
Its like paying government 0 and getting back and we are happy with that.
Correct me if I am wrong
June 30th, 2009 at 11:55 pm
You’re partially wrong.
If you pay $15,000 a year in interest and property taxes AND you are in the 15% tax bracket, you get to reduce that $15k from your income. This means you will pay $2,250 less in federal income taxes. So in other words, you are paying $15k to save $2k. It’s not good business sense, but it’s better than not saving anything…but that’s not the entire story…it gets worse.
You only get to deduct the $15k IF AND ONLY IF you itemize your deductions (instead of taking the standard deduction). If you are married, your standard deduction is $11,400 ($5,700 if you are single).
Since you are paying $15k in interest/taxes, you get to deduct an extra $3,600 than you otherwise would have been entitled to anyway. Therefore, your net tax benefit really isn’t $2,250. It’s only $540 (15% of $3,600).
But wait…it gets worse…
You are only paying $15k in interest/property taxes the FIRST YEAR of the mortgage. Keep in mind that part of your mortgage payment goes to principle. While your payment each year will be the same, the amount going towards principle and the amount going towards interest will change. Eventually, that $15k payment each year will only be a few thousand worth of interest…at which point there is ZERO tax benefit.
June 30th, 2009 at 11:55 pm
the interest you pay on your mortgage is a tax deduction
June 30th, 2009 at 11:55 pm
You are wrong.
June 30th, 2009 at 11:55 pm
Mortgage loan is a term used for the loans secured by a property. Mortgage loans refer to a loan secured by residential property, often for the purpose of securing real estate. Mortgage loans are priced lower than other loan structures because the value of the property risk for the lender.
http://www.worldbestloans.com/Mortgage%20Loan.htm
A fixed rate mortgage loan has its own benefit. If the borrower is budget conscious, he will remain at peace because the monthly mortgage amount will not change.Fixed rate mortgage loan is a loan where the interest rate remains the same through the term of the loan. Fixed rate mortgage loans are the most traditional form of loan.
June 30th, 2009 at 11:55 pm
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June 30th, 2009 at 11:55 pm
You are right at this point that mortgage loan is tax beneficial as mortgage loans provide the facility to pay the loan with tax cut payments.
June 30th, 2009 at 11:55 pm
The government wants you to spend money so that it can stimulate the economy. If the economy gets going again, it will cost less for the government in the long run.
June 30th, 2009 at 11:55 pm
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