I'm not a financial genius and am trying to figure out how to calculate
the effect of the mortgage interest tax deduction on our monthly
housing expenses. Does it make sense to treat the deduction as
additional monthly income (or as reducing the mortgage payment)?

Eg., let's say we have a loan of 324k at 5.5%. First mortgage payment
is $1839. $1485 of that is interest. At a 28% tax rate, that means
$415 is the savings on your taxes. For purposes of calculating what we
can afford, does it make sense to take that $415 savings for that month
and either add it to your monthly income or deduct it from the mortgage
payment (same difference) to calculate money out of pocket for that
month? So say I bring home (net) $1600 per month. With an $1839
mortgage payment, you'd be in the red $239 for that month. But
considering the tax deduction, you are actually 1600 + 415 - 1839 =
$176 ahead. ??

Thanks for any tips.

-Chris

In article . com, "Chris" wrote:
I'm not a financial genius and am trying to figure out how to calculate
the effect of the mortgage interest tax deduction on our monthly
housing expenses. Does it make sense to treat the deduction as
additional monthly income (or as reducing the mortgage payment)?

Either way, it comes out the same in the end. But...

Eg., let's say we have a loan of 324k at 5.5%. First mortgage payment
is $1839. $1485 of that is interest. At a 28% tax rate, that means
$415 is the savings on your taxes. For purposes of calculating what we
can afford, does it make sense to take that $415 savings for that month
and either add it to your monthly income or deduct it from the mortgage
payment (same difference) to calculate money out of pocket for that
month? So say I bring home (net) $1600 per month. With an $1839
mortgage payment, you'd be in the red $239 for that month. But
considering the tax deduction, you are actually 1600 + 415 - 1839 =
$176 ahead. ??

Well, yes, but I hope there's a second income in your household somewhere.
You can't buy much food on $176/month, let alone utilities, insurance,
gasoline, car payments, etc...

--
Regards,
Doug Miller (alphageek at milmac dot com)

It's time to throw all their damned tea in the harbor again.

Yep! Those aren't the real numbers, just chosen for an example.

"Chris" writes:

I'm not a financial genius and am trying to figure out how to calculate
the effect of the mortgage interest tax deduction on our monthly
housing expenses. Does it make sense to treat the deduction as
additional monthly income

Additional tax-free monthly income.

(or as reducing the mortgage payment)?

That's easier ... Something like $1839 mortgage payment is "equivalent"
(but see below) to $1424 rent.

Thanks for any tips.

Don't forget that there may be quite sizeable property tax as well.
You also get to deduct this tax, but it still can affect your
balance sheet quite a bit. E.g. assuming 3% property tax, you'll
need to pay additional $810/month, but will reduce your taxes
by $227/month.

So now you a $1600 + ($415 - $1839) + ($227 - $810) = -$417
behind

Cheers,
--
In order to understand recursion you must first understand recursion.
Remove /-nsp/ for email.

On 5 Sep 2005 14:23:45 -0700, "Chris" wrote:

I'm not a financial genius and am trying to figure out how to calculate
the effect of the mortgage interest tax deduction on our monthly
housing expenses. Does it make sense to treat the deduction as
additional monthly income (or as reducing the mortgage payment)?

Eg., let's say we have a loan of 324k at 5.5%. First mortgage payment
is $1839. $1485 of that is interest. At a 28% tax rate, that means
$415 is the savings on your taxes. For purposes of calculating what we
can afford, does it make sense to take that $415 savings for that month
and either add it to your monthly income or deduct it from the mortgage
payment (same difference) to calculate money out of pocket for that
month? So say I bring home (net) $1600 per month. With an $1839
mortgage payment, you'd be in the red $239 for that month. But
considering the tax deduction, you are actually 1600 + 415 - 1839 =
$176 ahead. ??

Thanks for any tips.

-Chris

Hi Chris. I think you are making it too hard. Too determine you budget,
you take your gross income and deduct all fixed expenses. What is left is
your disposable or net income.

In an ideal world your tax withholding exactly matches your year end
obligations. So you will adjust your payroll deductions to approximate
your final tax obligation. This reduces your fixed deductions and will
increase your net income.

If you are cutting things that close, be sure to slightly under estimate
the monthly tax savings and allow for overpayment of any impound accounts
(monthly prepayment of property taxes and insurance.) Also be sure to
estimate ALL the costs of home ownership, including a reserve for medium to
major repairs.