Mortgage Calculator Estimates Mortgage Interest Tax Deduction
How much of a tax deduction is actually generated by mortgage interest?
Your mortgage interest may be deductible, but it doesn't always provide as large a benefit as you may think. As a matter of fact, some people get no deduction at all for their mortgage interest. Below is a link to a mortgage calculator that can help you estimate the amount of tax benefit that may be generated by tax deductible mortgage interest.
To use this mortgage deduction calculator, you will need to input information such as the mortgage balance and interest rate.
Also, you will want to collect basic tax information including your tax rate and an estimate of itemized deductions. It will be helpful to have last year’s tax return to reference.
If you are not sure what tax rate you are in then look at your taxable income on line 43 of your 1040 tax form, and compare that to the 2015 tax rates in this table.
If you are getting little benefit from the mortgage interest deduction, perhaps you should pay off the mortgage. To weigh out the pros and cons check out the following:
- Pay Off Mortgage Early - Pros and Cons
- Should I Invest, or Pay Off the Mortgage?
- Mortgage Interest Deduction Before and After Retirement
Making the Decision
These decisions may not be the easiest to make. Many people get emotionally attached to the idea of paying off the mortgage, or the idea of maintaining cash in the bank and not using it to pay down the mortgage. Emotions matter, but also make sure you consider the analysis and what makes the most sense based on your financial circumstances.
After considering the pros and cons of paying off a mortgage and evaluating the tax consequences both ways - having a mortgage or having no mortgage - then you may also benefit from a qualified opinion from your financial planner or tax specialist. With any critical decision, it is better to equip yourself with knowledge and seek an expert to validate your research and give you feedback.
Variables at Play
One of the common sayings you hear in the business world is that the "only constant thing is change." For this topic, it is important to understand that the tax rules may change from time to time. Additionally, interest rates may change, too. When interest rates have gone lower than your current rate, you may also want to consider doing some sort of refinance to lower your rates or change your payment terms.
Changing your mortgage terms is usually more favorable while you have steady income and interest rates have gone at least 1% lower than your current rates. If you change terms, then, you will also want to run the numbers again under the new parameters to see if maintaining the mortgage still makes sense.