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.
Related or Semi-related Video
Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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