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.

---

Refinancing Your Home - Is the Time Right?

Refinancing your home is a major decision not to be... Read More

Home Equity Loans Can Provide Cash in a Hurry

Think About the Long Term. Estimate how long you expect... Read More

Adjustable Rate Mortgages Offer Alternatives For Home Buyers

When looking for a mortgage to meet your needs, consider... Read More

Choosing The Right Buy-To-Let Mortgage

Buy-to-let took off during the 1990s with the increasing availability... Read More

Option ARM ? The World?s Most Dangerous Mortgage

Home prices have reached record levels, and in many parts... Read More

Interest Only Home Loan ? Is It Right For You?

There are many benefits to interest-only mortgage loans. There are... Read More

Securing a US Commercial Mortgage

What's the most efficient way to secure a US Commercial... Read More

Secured Loans ? Making the Most of Your Home as Collateral

My visit to the lender was interrupted with my wife... Read More

Home Equity Loans - How To Use Your Homes Equity to Consolidate Debt

If you've got a wallet full of credit cards, and... Read More

Mortgage Free In 15 Years!

Imagine paying your mortgage off in 15 years! Think of... Read More

Refinance Online

If you want a low interest, low payment mortgage refinance,... Read More

Bad Credit? With Poor Credit You Can Still Refinance Or Get A Home Equity Line Of Credit

Have you decided to refinance your home or apply for... Read More

The Top 5 Things You Must Know Before Applying for a Mortgage

You've been thinking about buying your own home for quite... Read More

Hard Money Loans - Reasons Why You Might Want To Try Applying With A Subprime Mortgage Lender

Before you apply for a hard money loan, try applying... Read More

Refinancing After Bankruptcy

Refinancing after a bankruptcy can seem like an especially difficult... Read More

A Guide to Finding Cheap Homeowner Loans

If you're actively looking for cheap homeowner loans, there are... Read More

Using a Calculator to Assess Your Loan

Buying a house is a very important step in your... Read More

Mortgage-Refinance Treachery: Avoid Mortgage Bankers and Brokers Biggest Trick -- The Sales Pitch

What the average homeowner or home buyer fails to realize... Read More

Refinancing Your Home Mortgage - Get Up To 125% Cash From Your Homes Value

With the low interest rates being offered by lenders today,... Read More

What Exactly is a Mortgage Broker and How Can He/She Help You Save Thousands on Your Mortgage?

Have you ever heard of a mortgage broker before? If... Read More

Repayment of Loans ? Lessening the Bitterness of the Process

So how have you planned the repayment? Don't tell if... Read More

Some Mortgage Loans are Available with Absolutely no Money Needed From You

Today, FHA will loan up to 97 percent of the... Read More

Subprime Mortgage Loans Online - What To Expect

Applying for a subprime mortgage loan online can seem intimidating... Read More

What is a Capped Mortgage?

A capped mortgage is a variable rate mortgage with a... Read More

Getting the Best Homeowner Loan for Your Money

With so many lenders out there, it can be hard... Read More

What is a Self-Employed Mortgage?

Self-employed mortgages, as the term implies are mortgages designed for... Read More

Stop Foreclosure - 7 Tips to Save Your Home

Faced with the threat of a foreclosure on their home,... Read More

Taking the Time to Find the Best Home Improvement Loans

The best home improvement loans usually aren't going to be... Read More

Biweekly Mortgage

The biweekly mortgage has been around for years but with... Read More

Guide to Remortgages

Here is a useful guide to remortgages. What is a... Read More

Online Mortgages in 5 Easy Steps!

We're all entitled to the opportunities and benefits of home... Read More

Say Yes to ISA Mortgages for a Convenient Mortgage Repayment

Customers who opt for an interest only mortgage, and feel... Read More

Home Loans: Where Do I Begin?

So you've finally decided you've had enough of paying rent... Read More