After Tax Cost of Your Raleigh Mortgage

Future and current homeowners need to understand there may be substantial tax benefits to owning a home and having a mortgage. FACT: Homeowners who itemize tax deductions can deduct the interest on up to $750,000 of mortgage balances used to buy, build or improve a qualified home (see IRS Publication 916).

Your cost of borrowing may be lower than you think!

Most homebuyers and some current homeowners don’t understand and are surprised that their cost of borrowing is significantly reduced by this tax benefit. 

Kevin Martini | Raleigh Mortgage Lender & Certified Mortgage Advisor

As discussed, homeowners who itemize tax deductions can deduct the interest on up to $750,000 of mortgage balances used to buy, build or improve a qualified home. In the past few years, not as many homebuyers benefited from this because their total annual interest expense was lower than their standard deduction.

However, interest rates and total annual interest expenses have basically doubled this year according to Freddie Mac’s weekly survey of mortgage rates. For illustration ONLY, a $500,000 mortgage at a 6.5% interest rate has an annual interest expense of $32,500. This far exceeds the standard deduction. To help calculate the potential impact of the tax deduction Kevin Martini and Logan Martini with the Martini Mortgage Group have created a very simple 3 Step Process.

3 Step Process to Calculate Potential of Impact of Tax Deduction

1. Determine Marginal Tax Rate
2. Know Mortgage Rate
3. Very Simple After-Tax Benefit Math

Determine Marginal Tax Rate

What is your marginal tax bracket? A marginal tax rate is the rate that applies to your last dollar of taxable income. In other words, the highest bracket homebuyer’s income falls into. At the time of publication, there are seven federal income tax brackets. Determine how you file(i.e. a single filer or married filing jointly) and use the charts below to determine their marginal tax bracket.

Single filers:

10%	12%	22%	24%	32%	35%	37%
$0 to $9.950	$9,921 to $40,525	$40,526 to $86,375	$86,376 to $164,926	$164,926 to $209,425	$209,426 to $523,600	$523,601 or more

Married, filing jointly:

10%	12%	22%	24%	32%	35%	37%
$0 to $19,900	$19,901 to $81,050	$81,051 to $172,750	$172,751 to $329,850	$329,851 to $418,850	$418,851 to $628,300	$628,301 or more

Know Your Mortgage Rate

You need to know what your mortgage rate is.

Very Simple After-Tax Benefit Math

This step is very simple but does have 3 components

#1 Express the tax bracket as decimal

#1 Express the tax bracket as decimal … for illustration and example ONLY, let’s assume a 24% marginal tax bracket so in decimal form that is expressed as 0.24

#2 Subtract the decimal from the whole number one

#2 Subtract the decimal from the whole number one … for illustration and example ONLY, we would take one minus the marginal tax bracket expressed as a decimal hence, 1 – 0.24 = 0.76

#3 Multiple that number by the the current or actual mortgage rate

#3 Multiple that number by the the current or actual mortgage rate … for illustration and example ONLY. let’s use a mortgage rate of 6.5% so 6.5 x 0.76 = 4.94

PLEASE NOTE: THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936. Also, this article is not an offer or commitment to lend you money, and it is not an advertisement for a specific mortgage or a specific interest rate.