Mortgage Interest

See: Mortgage. See: Mortgage Rate. See: Adjustable-Rate Mortgage (ARM).

What's the magic sauce in a mortgage? Rhymes with "shmax shmeductibility."

Yep, the interest comes right off the top. So if you have an interest-only mortgage of $300,000 and you're paying 5% interest, then you're paying $15,000 a year in fully deductible interest.

You make $100,000 as a forensic dentist, and on your last $30,000 in earnings, you pay 30% tax. But now, as far as the tax collector cares, you don't make $100,000. You make $85,000, because that $15,000 in interest comes right off of your taxable earnings. So whereas normally from $70,001 to $100,000, you'd pay 30% of that $30,000, or $9,000 in taxes, now, you pay 30% on the $15,000, from $70,001 to $85,000, or $4,500.

You save $4,500 in taxes. Or, said another way, instead of it feeling like $15,000 in mortgage interest, it feels more like $10,500 in mortgage interest costs.

Welcome to the American Dream. Pay at the window on the right.