Mortgage Tax Savings Calculator
Interest paid on a mortgage is tax deductible if you itemize on your on tax return.
So are points that are paid to lower your interest rate. Use this calculator to
determine how much you could save in income taxes. Click on the "View Report" button
to view the results in detail.
Definitions
- Mortgage amount
- Original or expected
balance for your mortgage. Taxpayers can deduct the interest paid on first and second
mortgages up to $1,000,000 in mortgage debt (the limit is $500,000 if married and
filing separately). Any interest paid on first or second mortgages over this amount
is not tax deductible. Home equity loans are limited to $100,000 or the amount of
equity you have in your home. Our calculator limits your interest deduction to the
interest payment that would be paid on a $1,000,000 mortgage.
- Interest rate
- Annual interest
rate for this mortgage.
- Interest rate
after taxes
- Annual effective
interest rate after taxes are taken into account. Please note that in addition to
the $1,000,000 mortgage debt limit, this calculator assumes that your itemized deductions
will exceed the standard deduction for your income tax filing status. If your itemized
deductions don't exceed your standard deduction, the benefit of deducting the interest
on your home will be reduced or eliminated. For 2002 the standard deductions were
$7,850 for married couples filing jointly, $3,925 for married couples filing separately,
$4,700 for singles, and $6,900 for heads of household. You should also be aware
that the total tax savings may be less for higher incomes that have their allowable
itemized deductions phased out.
- Term in years
- The number of
years over which you will repay this loan. The most common mortgage terms are 15
years and 30 years.
- Monthly payment
- Monthly principal
and interest payment (PI).
- Federal tax
rate:
- The marginal
federal tax rate you expect to pay.
- State tax
rate:
- The marginal
state tax rate you expect to pay.
- Annual Percentage
Rate (APR)
- A standard calculation
used by lenders. It is designed to help borrowers compare different loan options.
For example, a loan with a lower stated interest rate may be a bad value if its
fees are too high. Likewise, a loan with a higher stated rate with very low fees
could be an exceptional value. APR calculations incorporate these fees into a single
rate. You can then compare loans with different fees, rates or different terms.
- APR after
taxes
- Annual percentage
rate after taxes are taken into account. Unlike your after-tax interest rate, the
APR after taxes takes closing costs into account.
- Loan origination
percent
- The percent of
your loan charged as a loan origination fee. For example, a 1% fee on a $120,000
loan would cost $1,200.
- Discount points
- Total number
of "points" purchased to reduce your mortgage's interest rate. Each "point" costs
1% of your loan amount. As long as the points paid are not a broker's commission,
they are considered tax deductible in the year that they were paid.
- Other fees
- Any other fees
that should be included in the APR calculation. These fees can vary by lender, but
at a minimum usually includes prepaid interest.
Information and interactive calculators are made available to you as self-help tools
for your independent use and are not intended to provide investment advice. We can
not and do not guarantee their applicability or accuracy in regards to your individual
circumstances. All examples are hypothetical and are for illustrative purposes.
We encourage you to seek personalized advice from qualified professionals regarding
all personal finance issues.
