Understanding the actual cost of your Raleigh mortgage can be the key to smart financial planning. Have you ever wondered if you’re paying more or less than you think? By calculating your after-tax cost, you’ll get a clearer picture, showing how your cost of borrowing may be lower than it appears on the surface.
Tax Deductions Related to Your Raleigh Mortgage
For homeowners who itemize their tax deductions, mortgage interest is generally deductible on up to $750,000 of mortgage balances used to buy, build, or improve a qualified home. This deduction can help you determine your after-tax mortgage cost.
Follow this 3-step process from Martini Mortgage Group to calculate the after-tax cost of your Raleigh mortgage:
- Identify Your Marginal Tax Bracket
- Know Your Mortgage Rate
- Calculate Your After-Tax Interest Rate
Step 1: What is Your Marginal Tax Bracket?
Tax brackets are income ranges that determine how much federal tax you owe on different portions of your earnings. Think of these brackets as levels: as your income increases, you’re taxed at progressively higher rates, but only on the income within each specific bracket. Each bracket has its own rate, which applies only to that portion of your income within its range. For example, in 2024, a single filer earning $40,000 would pay 10% on the initial portion of their income and 12% on the amount above that, creating a layered tax structure. However, when calculating your after-tax mortgage cost, you must use your marginal tax rate—the highest rate applied to your income.
Here are the 2024 federal income tax brackets for reference:
Single Filers
10%: Up to $11,600
12%: $11,601 to $47,150
22%: $47,151 to $100,525
24%: $100,526 to $191,950
32%: $191,951 to $243,725
35%: $243,726 to $609,350
37%: Over $609,350
Married Couples Filing Jointly
10%: Up to $23,200
12%: $23,201 to $94,300
22%: $94,301 to $201,050
24%: $201,051 to $383,900
32%: $383,901 to $487,450
35%: $487,451 to $731,200
37%: Over $731,200
Step 2: What is Your Mortgage Rate?
Once you know your tax bracket, identify your mortgage interest rate, which is your cost of borrowing.
Step 3: Calculate Your After-Tax Interest Rate
To determine the after-tax cost, follow these steps for illustration purposes only, let us assume the marginal tax bracket is 24% and the Raleigh mortgage rate is 7%:
- Convert your marginal tax bracket into a decimal (e.g., 24% becomes 0.24).
- Subtract this decimal from 1 (e.g., 1 – 0.24 = 0.76).
- Multiply the result by your mortgage interest rate (e.g., if your mortgage rate is 7%, the equation would be 7% x 0.76 = 5.32%).
In this example, a 7% mortgage interest rate costs 5.32% after tax for someone in a 24% tax bracket.
Remember, this calculation only applies if you itemize your tax deductions. Generally, it’s worth itemizing only if your total deductions exceed the standard deduction, which in 2024 is $14,600 for single filers and $29,400 for married couples filing jointly.
Making an Informed Decision
Understanding the after-tax cost of your Raleigh mortgage helps you make informed financial decisions. Connect with Martini Mortgage Group for guidance tailored to your unique situation—whether you’re a first-time homebuyer or looking to refinance or upgrade your address.
Please Note
THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY BY THE MARTINI MORTYAGE GROUP AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE ABOUT 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.
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