Home Loans and Mortgages ? The Myth of Tax Deductible Interest
Home ownership has risen sharply in recent years, and the percentage of Americans who own their own homes is approaching a record seventy percent. That's a good thing; we'd all rather live in our own home than consider the alternatives. The most common method of purchasing a home is by taking out a mortgage. Mortgage types vary, but most loans consist of some variation of a thirty-year loan, with interest applied to the purchase price. This added interest can easily cause the total sum paid to be double or triple the actual purchase price of the home.
This is an unavoidable cost of borrowing a large sum of money over a long period of time, but it still causes alarm at closing time when the borrower realizes that his or her $150,000 home will cost a half million dollars by the time the loan is paid off. At this point, the lender usually points out that the interest is tax deductible, and the borrower offers a sigh of relief. Is the deductibility of the interest really that big of a deal? Does anyone really benefit from it? Without question, the best way to pay for a home is to pay cash. It's the cheapest way to buy a home and once you pay for it, you are done. Few Americans are in a position to do so, however.
Homes are expensive. And depending on economic conditions, it may actually be cheaper to take out a loan than to pay cash. If you could borrow money for thirty years at six percent and invest money at ten percent, you'd be better off borrowing and investing instead of paying cash. But lenders and others who mean well often mention that tax deduction as though it should be a deciding factor in how a home is purchased. The interest on a primary residence is deductible on loans of up to one million dollars.
That means that the amount of interest paid in a calendar year can be deducted from taxable income, effectively reducing the amount of income tax paid. More often than not, this turns out to be of little benefit to taxpayers. It's not as though the Government is paying your interest. For the typical American taxpayer who pays in the 28% tax bracket, the deduction amounts to a rebate of twenty eight cents for every dollar paid in interest. Complicating matters is the fact that this is only true for that portion of the interest that exceeds the standard deduction allowed for every taxpayer that files.
That deduction, currently $10,000 per married couple, is usually greater than the amount of mortgage interest most couples pay during the year. What this means is that many, if not most, Americans derive no tax benefit from their mortgage interest whatsoever. Of course, homeowners who pay more than 28% of their income in taxes or those who own homes with large mortgages can benefit more from the tax deduction. Most American homeowners, on the other hand, get nothing from it. The tax deduction isn't entirely insignificant, but it shouldn't be a deciding factor in determining how to pay for a home.
Prospective buyers should realize that while the deduction is a potential perk of taking out a mortgage, the likely tax benefit from it ranges from "very small" to "nothing at all.".
?Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including HomeEquityHelp.com, a site devoted to information regarding mortgages and home equity loans .Home Loans and Mortgages ? Watch Out for Dangerous Subprime Loans
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People who are interested in purchasing a home should be careful, however, as many people who should qualify for traditional loans are being pushed into higher-priced subprime loans instead.The subprime market is quite a lucrative...
Home Loans and Mortgages ? Watch Out for Dangerous Subprime Loans
Mortgages > Home Loans and Mortgages ? Watch Out for Dangerous Subprime Loans
Understanding Fixed-rate Mortgages
A fixed-rate mortgage is a mortgage on which the interest rate is set for the term of the loan. Your interest rate stays the same for the term of the mortgage or for a specified period of time. Most people use a fixed-rate mortgage. In fact, about 75 percent of all home mortgages have fixed rates. The main advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be, and you can plan for it.A Fixed Rate mortgage will offer you the security of knowing that your mortgage interest rate will not change during the term of your fixed rate.
For example, a lender can offer a 30-year fixed loan to a homebuyer at a 6.5% interest rate. The loan is locked in to the 6.5% interest rate, even if the market interest rate rises to 8.0%. Conversely, if the market interest rate decreases to 4.5%, you will continue to pay the 6.5% interest rate. A Fixed-Rate Mortgage applies the same interest rate toward monthly loan payments for the life of the loan....
Understanding Fixed-rate Mortgages
Mortgages > Understanding Fixed-rate Mortgages
Mortgage advice to make mortgages a really smooth ride
Mortgages are easy as long as you understand them well. But how many borrowers can be confident of their knowledge of mortgages.With the list of terms and terminologies related to mortgages growing fastly, it is difficult to keep pace with it. However, ignorance of law is no excuse. Therefore, it is necessary to be updated in the field of mortgages.This will not require a wide knowledge of mortgages. A basic understanding of the mortgage terms and the impact that every mortgage decision has on the overall financial condition of the customer will be desirable.
Once the need for mortgage advice is created, it is easy to get it. There are various articles on the topic. Newspaper clippings, seminars etc. can be valuable source of information. Friends and relatives who have taken mortgages too can provide valuable information.
These explain the various terms associated with mortgage in easy to understand language. Nevertheless, whether or not the advice given is independent...
Mortgage advice to make mortgages a really smooth ride
Mortgages > Mortgage advice to make mortgages a really smooth ride
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Mortgages > IRA Catch Up Limits Help Baby Boomers
Home Loans and Mortgages ? The Myth of Tax Deductible Interest
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Pricebookers.co.uk Launches New Travel Search Service, Compare Flights, Hotels and Car Rentals in Fewer Clicks and Less Time
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The Ultimate $17,900,000 For-Sale-By-Owner Real Estate Listing is Now on eBay
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The Ultimate $17,900,000 For-Sale-By-Owner Real Estate Listing is Now on eBay real estate Home Loans and Mortgages ? The Myth of Tax Deductible Interest Mortgages
Mortgages > The Ultimate $17,900,000 For-Sale-By-Owner Real Estate Listing is Now on eBay
Little Known Public Car Auction Information
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Little Known Public Car Auction Information
Mortgages > Little Known Public Car Auction Information