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The Tax Advantage
One of the biggest advantages of owning over renting is the mortgage interest and property tax deduction youll receive from your federal taxes. This means that every dollar you spend on mortgage interest and property tax is a dollar you get to subtract from your adjusted gross income, resulting in lower tax bill each year.
Heres a simple way to calculate the tax savings your monthly mortgage check yields:
a. Start with your monthly interest
b. Add the monthly cost of property tax
c. Multiply the total by your tax rate
d. The result will be the amount you are saving each month in taxes.
e. Subtract this from your total monthly payment to get the real cost of your payment.
$250,000 loan at 6.25% interest. This requires a monthly interest payment of roughly $1302 during the first year of the loan. Lets assume property taxes of $2400/yr. or $200/month. Your total payment including (principal, interest, taxes) is $1740.
Interest ($1302) + Property Tax ($200) = $1502
Your loan officer can give you the numbers to assist you in estimating your tax savings for your loan. Once you have started itemizing your deductions other itemizations options become available to start deducting (i.e. Medical, Work Expenses, Education, Charity, etc.) Each situation requires close evaluation. The results could be substantial, talk with your tax advisor to see how much additional savings itemization could create for you.
The smaller benefits often add up fast. Homeowners insurance is not included in our payment scenario which covers your home and personal property for minimal expenses. Auto insurance could be less due to discounted rates if purchased with the home owners insurance. Electric and/or gas bills could be less if purchasing a more energy efficient home.
The future benefits of home ownership far exceed the traditional benefits. The #1 benefit is SECURITY. Knowing that you will have an investment with equity that could allow you to send your children to college, to retire or to deal with an emergency. This peace of mind doesnt have a dollar value.