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Fri Nov 30, 2012, 01:45 PM

How much does the Mortgage interest deduction really save us? [View all]

Last edited Fri Nov 30, 2012, 02:33 PM - Edit history (1)

How much does the Mortgage interest deduction really save us? Not much for me after my analysis.

Here are my numbers -- yes I also factored in the other common deductions for homeowners -- the property tax deduction. The Standard Deduction for those who are married and filing jointly is $11,400.00 in 2012. I would argue, that my wife and I are in the middle class -- we make about $72,000 or so a year. We have a 30 year loan at a fixed interest rate of 3.875% for $228,000.00. In the first year, where the mortgage interest deduction is always the highest, I paid $8,763.00 in interest. My property taxes were $3,127.00 dollars. The total I would deduct then would be $8,763.00 + $3,127.00 = $11,890.00. Our marginal tax rate is 15%. The difference between the itemized deduction we are taking and the standard deduction ends up being $490.00 dollars which translates to a tax savings of $73.50. What's my point? With such low interest rates, can the middle class go without the mortgage interest deduction? In my case, yes. In you're case maybe not. This deduction becomes more and more favorable with higher interest rates and with higher amounts borrowed.

I'd recommend for all of you to figure out how much you're really saving by taking the mortgage interest deduction. Is it as much as you thought, more than you thought, or less than you thought?

Should we get rid of it? I'm not saying yes or no. What I'm recommending is that you figure out how much it saves you, if anything.

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