How do you calculate your "true" mortgage interest rate.

[dxkj]

Example:

$135k mortgage
5.5% interest rate
3,000 property tax yearly

60k combined income

No dependents or deductions (other than property tax, and interest from house)


Im able to claim the interest I paid, and the property tax, so how much of that 5.5% interest do I actually end up paying?

 

[BoberFett]

Just run an amortization spreadsheet to show your Principal and Interest and how it adjusts over the year. Then total up your interest.

Also, you'll receive that information at the beginning of next year in a form from your lender that you'll submit with your taxes. You don't have to figure it out yourself.

 

[RossMAN]

http://www.bankrate.com/brm/amortization-calculator.asp

 

[LordNoob]

Go to the bookstore and buy an amorization table for future reference. They come in very handy. You can get a pocket version.

 

[dxkj]

No...


I mean after the money I get back because I claim the interest on my tax return

nm i think you guys missed my point, but i suck at making points so thats ok

 

[BoberFett]

Unless you know what your income will be with all deductions and what your tax bracket will be on the money saved from writing off mortgage interest, you can't really get the number I think you're looking for.

 

[mugs]

Originally posted by: BoberFett
Unless you know what your income will be with all deductions and what your tax bracket will be on the money saved from writing off mortgage interest, you can't really get the number I think you're looking for.

Not to mention you have to figure in the loss of the standard deduction.

 

[dxkj]

Originally posted by: mugs

Originally posted by: BoberFett
Unless you know what your income will be with all deductions and what your tax bracket will be on the money saved from writing off mortgage interest, you can't really get the number I think you're looking for.

Not to mention you have to figure in the loss of the standard deduction.

Yeah thats what I am trying to figure out, and I have no clue how, hence the post, but also all the replies state its hard, so I at least I dont feel like an idiot.

I figure it sounds like a 5.5% rate would end up down around 4% when you take into account the money coming back on a tax return... which is only a useful ffigure for deciding what loans to pay extra on, and whether or not to invest more/have more go into retirement savings

 

[dxkj]

Ok will leave it at that.... too many articles make me think, hurts my head

 

[Kenazo]

If anyone wants an amortization schedule for their mortgage I can quickly make one for you and print it to a pdf so you know what your actual interest rate is, how much of each pmt is principal/interest, etc.

<- junior accountant who has a nifty program for printing these things out.

 

[rahvin]

Originally posted by: Kenazo
If anyone wants an amortization schedule for their mortgage I can quickly make one for you and print it to a pdf so you know what your actual interest rate is, how much of each pmt is principal/interest, etc.

<- junior accountant who has a nifty program for printing these things out.

Alternatively you can open excel, pick new from template and pick the loan amortization template and type in your info into a spreadsheet without having to send your personal information to someone you don't know. :thumbsup:

 

[dxkj]

Yeah Im aware of how to do all that calculation, I guess I should have prefaced with TAX RETURN QUESTION kinda

 

[Kenazo]

Originally posted by: rahvin

Originally posted by: Kenazo
If anyone wants an amortization schedule for their mortgage I can quickly make one for you and print it to a pdf so you know what your actual interest rate is, how much of each pmt is principal/interest, etc.

<- junior accountant who has a nifty program for printing these things out.

Alternatively you can open excel, pick new from template and pick the loan amortization template and type in your info into a spreadsheet without having to send your personal information to someone you don't know. :thumbsup:

How is amount of mortgage, payment and interest rate anywhere close to personal?

plus, not everyone here is that excel savvy to even know that there is such a template.

 

[Vic]

I would not call it your "true"mortgage interest rate because your "true" mortgage interest rate is the APR on the Truth-in-Lending disclosure in your loan documents.

However, to answer the question:

If your mortgage of $135,000 at 5.5% is a 30 year fixed, then your P&I payment is $766.52/mo. Assuming this is your first year and you closed in November (making your 1st payment due January 1st), you will pay $7,379.61 in interest this calendar year (and $1,818.57 in principal). With your $3,000 in annual property taxes (an outrageous tax rate btw, assuming that you put little down so the value of the home is in the $135k-$150k range), your total tax deductions from the home are $10,379.61.
You said that you have a $60k combined income, so I'm going to assume that you're married and file jointly. 2005 tax instructions have not yet been released, but in 2004 the standard deduction for married-filing-jointly was $9,700.
$10,379.61 - $9,700 = $679.61 * 0.15 (tax rate for married-filing-jointly up to $58,100 -- which you will be able to deduct under) = $101.94 = your tax savings from owning a house.
Call it $102 because you always round up to the nearest dollar when calculating taxes.


* Disclaimer: consult your tax adviser, I am not an accountant or licensed tax preparer.

 

[skimple]

You're mixing unrelated data together. The deduction from mortgage interest and the deduction from property tax are separate items. Your mortage is unrelated to your property taxes. It sounds like you are trying to find out the net finanical impact of buying a house, not just effective mortgage rate.

The easiest thing to do would be go back to last year's tax return, and instead of using the standard deduction (I assume), itemize using your information above. Using the amorization info which everyone here has so generously provided, figure out your first year's total interest and use that, along with you property tax etsimate. Determine what your taxes would have been if you paid it last year, and compare it to what you actually paid. The delta is what you save (or lose) by getting a mortgage.

If you want to compare that back to the total of your payments to determine net cash outflow, you can do that. But if you do, you have to also factor in the principal you are paying off as "savings" which you don't have if you are paying rent.

Let's say that your taxes went down $1300 by itemizing with a mortgage. Plus, you paid off $1300 in principal on your house, so you have $1300 equity. Your net gain is $2600, when compared to renting.

 

[dxkj]

Originally posted by: Vic
I would not call it your "true"mortgage interest rate because your "true" mortgage interest rate is the APR on the Truth-in-Lending disclosure in your loan documents.

However, to answer the question:

If your mortgage of $135,000 at 5.5% is a 30 year fixed, then your P&I payment is $766.52/mo. Assuming this is your first year and you closed in November (making your 1st payment due January 1st), you will pay $7,379.61 in interest this calendar year (and $1,818.57 in principal). With your $3,000 in annual property taxes (an outrageous tax rate btw, assuming that you put little down so the value of the home is in the $135k-$150k range), your total tax deductions from the home are $10,379.61.
You said that you have a $60k combined income, so I'm going to assume that you're married and file jointly. 2005 tax instructions have not yet been released, but in 2004 the standard deduction for married-filing-jointly was $9,700.
$10,379.61 - $9,700 = $679.61 * 0.15 (tax rate for married-filing-jointly up to $58,100 -- which you will be able to deduct under) = $101.94 = your tax savings from owning a house.
Call it $102 because you always round up to the nearest dollar when calculating taxes.


* Disclaimer: consult your tax adviser, I am not an accountant or licensed tax preparer.

So would it be better for us to file jointly, and one would claim the standard, and the other claim the 10k from interest?


Yes its a 150k house that we put 10% down on, and the tax on it is low compared to others in this area.... I saw several sub 200k houses with 4-5k tax a year



Edit: 120 is very little... ouch I forgot we had to consider the deduction amount given to us... so now i guess i need to deduct everything else I can think of as well

 

[skimple]

Originally posted by: Vic
I would not call it your "true"mortgage interest rate because your "true" mortgage interest rate is the APR on the Truth-in-Lending disclosure in your loan documents.

However, to answer the question:

If your mortgage of $135,000 at 5.5% is a 30 year fixed, then your P&I payment is $766.52/mo. Assuming this is your first year and you closed in November (making your 1st payment due January 1st), you will pay $7,379.61 in interest this calendar year (and $1,818.57 in principal). With your $3,000 in annual property taxes (an outrageous tax rate btw, assuming that you put little down so the value of the home is in the $135k-$150k range), your total tax deductions from the home are $10,379.61.
You said that you have a $60k combined income, so I'm going to assume that you're married and file jointly. 2005 tax instructions have not yet been released, but in 2004 the standard deduction for married-filing-jointly was $9,700.
$10,379.61 - $9,700 = $679.61 * 0.15 (tax rate for married-filing-jointly up to $58,100 -- which you will be able to deduct under) = $101.94 = your tax savings from owning a house.
Call it $102 because you always round up to the nearest dollar when calculating taxes.


* Disclaimer: consult your tax adviser, I am not an accountant or licensed tax preparer.

You are forgetting your dependent deduction of $3100 per person, which you get in addition to the interest and tax deduction. So in your example, taxable income would go down by $16,579, instead of the $9700 standard. This would still put you in the 15% tax bracket, but the tax savings is $1031 (asuming no other deductions) + the equity that you
accumulate.

Plus, the first year of your mortageg, most closing costs are tax deductible.

 

[Budmantom]

Originally posted by: Vic
I would not call it your "true"mortgage interest rate because your "true" mortgage interest rate is the APR on the Truth-in-Lending disclosure in your loan documents.

However, to answer the question:

If your mortgage of $135,000 at 5.5% is a 30 year fixed, then your P&I payment is $766.52/mo. Assuming this is your first year and you closed in November (making your 1st payment due January 1st), you will pay $7,379.61 in interest this calendar year (and $1,818.57 in principal). With your $3,000 in annual property taxes (an outrageous tax rate btw, assuming that you put little down so the value of the home is in the $135k-$150k range), your total tax deductions from the home are $10,379.61.
You said that you have a $60k combined income, so I'm going to assume that you're married and file jointly. 2005 tax instructions have not yet been released, but in 2004 the standard deduction for married-filing-jointly was $9,700.
$10,379.61 - $9,700 = $679.61 * 0.15 (tax rate for married-filing-jointly up to $58,100 -- which you will be able to deduct under) = $101.94 = your tax savings from owning a house.
Call it $102 because you always round up to the nearest dollar when calculating taxes.


* Disclaimer: consult your tax adviser, I am not an accountant or licensed tax preparer.

Lol, that's sad, for the longest time I thought that owning a house would really be a big tax break.... until I bought.


Tom

 

[dxkj]

Originally posted by: Budmantom

Originally posted by: Vic
I would not call it your "true"mortgage interest rate because your "true" mortgage interest rate is the APR on the Truth-in-Lending disclosure in your loan documents.

However, to answer the question:

If your mortgage of $135,000 at 5.5% is a 30 year fixed, then your P&I payment is $766.52/mo. Assuming this is your first year and you closed in November (making your 1st payment due January 1st), you will pay $7,379.61 in interest this calendar year (and $1,818.57 in principal). With your $3,000 in annual property taxes (an outrageous tax rate btw, assuming that you put little down so the value of the home is in the $135k-$150k range), your total tax deductions from the home are $10,379.61.
You said that you have a $60k combined income, so I'm going to assume that you're married and file jointly. 2005 tax instructions have not yet been released, but in 2004 the standard deduction for married-filing-jointly was $9,700.
$10,379.61 - $9,700 = $679.61 * 0.15 (tax rate for married-filing-jointly up to $58,100 -- which you will be able to deduct under) = $101.94 = your tax savings from owning a house.
Call it $102 because you always round up to the nearest dollar when calculating taxes.


* Disclaimer: consult your tax adviser, I am not an accountant or licensed tax preparer.

Lol, that's sad, for the longest time I thought that owning a house would really be a big tax break.... until I bought.


Tom

Maybe itemize more??

 

[Vic]

Originally posted by: skimple
You are forgetting your dependent deduction of $3100 per person, which you get in addition to the interest and tax deduction. So in your example, taxable income would go down by $16,579, instead of the $9700 standard. This would still put you in the 15% tax bracket, but the tax savings is $1031 (asuming no other deductions) + the equity that you
accumulate.

Plus, the first year of your mortageg, most closing costs are tax deductible.

I'm not sure I follow you. The dependent deduction occurs regardless of whether he itemizes or takes the standard. So, his total deductions (including 2 dependent deductions on Form 1040 Line 41) are $16,580 itemized (rounded) or $15900, still a difference of $680, still at 15%, still a tax savings of $102.

Yes, most closing costs on a purchase money mortgage are deductible in the first year (*consult tax adviser), and yes, I agree that the reason to own a home is to build equity.

 

[rahvin]

Originally posted by: Vic

Originally posted by: skimple
You are forgetting your dependent deduction of $3100 per person, which you get in addition to the interest and tax deduction. So in your example, taxable income would go down by $16,579, instead of the $9700 standard. This would still put you in the 15% tax bracket, but the tax savings is $1031 (asuming no other deductions) + the equity that you
accumulate.

Plus, the first year of your mortageg, most closing costs are tax deductible.

I'm not sure I follow you. The dependent deduction occurs regardless of whether he itemizes or takes the standard. So, his total deductions (including 2 dependent deductions on Form 1040 Line 41) are $16,580 itemized (rounded) or $15900, still a difference of $680, still at 15%, still a tax savings of $102.

Yes, most closing costs on a purchase money mortgage are deductible in the first year (*consult tax adviser), and yes, I agree that the reason to own a home is to build equity.

You said:

your total tax deductions from the home are $10,379.61.
You said that you have a $60k combined income, so I'm going to assume that you're married and file jointly. 2005 tax instructions have not yet been released, but in 2004 the standard deduction for married-filing-jointly was $9,700.
$10,379.61 - $9,700 = $679.61

In reality the calculation is: 10,379.61 (interest)+3100(dependent)+3100(dependent) (Although you don't get the standard deduction of $9700, you still get a dependent deduction for yourself and your spouse).

So as he said total deduction with the mortgage is $16,579 instead of the standard deduction of $9,700. That's a difference of $6,879 = a tax savings of $1,031 instead of the $102 you estimated when you didn't include the per person deduction you get when you itemize. In addition if you itemize you get to deduct things like charitable contributions and quite a bit of other things. They can add up.

 

[Vic]

Originally posted by: rahvin

Originally posted by: Vic

Originally posted by: skimple
You are forgetting your dependent deduction of $3100 per person, which you get in addition to the interest and tax deduction. So in your example, taxable income would go down by $16,579, instead of the $9700 standard. This would still put you in the 15% tax bracket, but the tax savings is $1031 (asuming no other deductions) + the equity that you
accumulate.

Plus, the first year of your mortageg, most closing costs are tax deductible.

I'm not sure I follow you. The dependent deduction occurs regardless of whether he itemizes or takes the standard. So, his total deductions (including 2 dependent deductions on Form 1040 Line 41) are $16,580 itemized (rounded) or $15900, still a difference of $680, still at 15%, still a tax savings of $102.

Yes, most closing costs on a purchase money mortgage are deductible in the first year (*consult tax adviser), and yes, I agree that the reason to own a home is to build equity.

You said:

your total tax deductions from the home are $10,379.61.
You said that you have a $60k combined income, so I'm going to assume that you're married and file jointly. 2005 tax instructions have not yet been released, but in 2004 the standard deduction for married-filing-jointly was $9,700.
$10,379.61 - $9,700 = $679.61

In reality the calculation is: 10,379.61 (interest)+3100(dependent)+3100(dependent) (Although you don't get the standard deduction of $9700, you still get a dependent deduction for yourself and your spouse).

So as he said total deduction with the mortgage is $16,579 instead of the standard deduction of $9,700. That's a difference of $6,879 = a tax savings of $1,031 instead of the $102 you estimated when you didn't include the per person deduction you get when you itemize. In addition if you itemize you get to deduct things like charitable contributions and quite a bit of other things. They can add up.

So long as you can claim yourself as a dependent, you get the dependent deductions whether you itemize or go standard (unless income > $107,025). I already said that (and you quoted it). I don't know where you are getting the idea that taking the standard deduction prevents you from taking the dependent deduction. 'Taint true.

Text - page 5 of pdf (2nd page Form 1040), line 39 for itemized or standard, line 41 for dependent deduction.
Note carefully that you start with your AGI in line 37, subtract line 39 from line 37 into line 40, and then subtract line 41 from line 40 into line 42.
Itemized/Standard deduction (line 39) is completely independent of Dependent deduction (line 41).

 

[rahvin]

Originally posted by: Vic
So long as you can claim yourself as a dependent, you get the dependent deductions whether you itemize or go standard (unless income > $107,025). I already said that (and you quoted it). I don't know where you are getting the idea that taking the standard deduction prevents you from taking the dependent deduction. 'Taint true.

Text - page 5 of pdf (2nd page Form 1040), line 39 for itemized or standard, line 41 for dependent deduction.
Note carefully that you start with your AGI in line 37, subtract line 39 from line 37 into line 40, and then subtract line 41 from line 40 into line 42.
Itemized/Standard deduction (line 39) is completely independent of Dependent deduction (line 41).

I was just repeating what the poster said because you didn't appear to address it. I really don't know as TurboTax does it all for me, I haven't done my taxes manually in 10 years.

 

[CrimsonChaos]

Originally posted by: Vic
I would not call it your "true"mortgage interest rate because your "true" mortgage interest rate is the APR on the Truth-in-Lending disclosure in your loan documents.

However, to answer the question:

If your mortgage of $135,000 at 5.5% is a 30 year fixed, then your P&I payment is $766.52/mo. Assuming this is your first year and you closed in November (making your 1st payment due January 1st), you will pay $7,379.61 in interest this calendar year (and $1,818.57 in principal). With your $3,000 in annual property taxes (an outrageous tax rate btw, assuming that you put little down so the value of the home is in the $135k-$150k range), your total tax deductions from the home are $10,379.61.
You said that you have a $60k combined income, so I'm going to assume that you're married and file jointly. 2005 tax instructions have not yet been released, but in 2004 the standard deduction for married-filing-jointly was $9,700.
$10,379.61 - $9,700 = $679.61 * 0.15 (tax rate for married-filing-jointly up to $58,100 -- which you will be able to deduct under) = $101.94 = your tax savings from owning a house.
Call it $102 because you always round up to the nearest dollar when calculating taxes.

:thumbsup: This is correct, mostly.

You can claim two dependents ($3,100 + $3,100) regardless if you itemize or not. However, you can also claim your income tax, charity contributions, and other things when you itemize.

Originally posted by: Budmantom
Lol, that's sad, for the longest time I thought that owning a house would really be a big tax break.... until I bought.

:thumbsup: This is what a lot of people fail to realize. They believe (incorrectly) that they will automatically get a huge tax break from their mortgage. This is usually only true if you have a lot of itemizations.

Otherwise, it's simply a percentage of [mortgage interest + poperty tax + income tax] - standard deduction = a lot less than you'd expect.

 

[CrimsonChaos]

I believe what the OP is asking is what his adjusted interest rate is after considering the additional refund he would receive from his tax return. Here's a very simplified formula you can use on a year-to-year basis:

INT = Interest paid on the house that year [$7,379.61]
PT = Property Taxes paid [3,000]
IT = Income Taxes Paid [$2,500 estimated]
OD = Other Deductions you have listed
SD = Standard Deduction [$9,700 for 2004 married joint filing]
TB = Taxes Bracket rate [15%]
AP = Average Principal over the course of the year [calculated below]

{ (INT) - { [ (INT) + (PT) + (IT) + (OD) - (SD) ] * (TB) } } / (AP)

So, in your example, we'll estimate you had $2,500 income tax you could itemize, and no other deductions.

{ $7,379.61 - { [ $7,379.61 + $3,000 + $2,500 + 0 - $9,700 ] * 0.15 } } / { $135,000 - [$135,000 - $133,181] / 2 }
{ $7,379.61 - { $3,179.61 * 0.15 } } / { $135,000 - $909.50 }
{ $7,379.61 - $476.9415 } / $134,090.50

0.051478 = 5.1478%

As you can see from the second last line, the formula is simply the amount of interest you actually paid minus the difference in the refund amount you would have received if you didn't have the house, all divided by the average principal over the course of the year.

If you eliminate the refund amount, the $7,379.61 / $134,090.50 should come out to be the actual interest rate of your loan.

Hope this helps.