Cha ... Ching?

[the_gneech]

Hello, extra pile of money in my paycheck. You'll come in so very handy!

Man, they aren't kidding about the tax savings for buying a house. 0.o I sure hope these figures are right! Between lythandra and me, this pretty much makes up the difference between our current rent, and what the mortgage payment will be.

Whoa. 0.o

-The Gneech

Comments

[mg4h.livejournal.com]

Between the mortgage interest and the real estate taxes, it becomes worth it to itemize for those of us in the middle class. Oh, and you get to deduct your state and local taxes too, which means you have to get those done first, before you do your federal taxes.

It certainly does help out, although paying off your mortgage is also a good thing. Has anyone told you about the extra-payment-a-year benefit?

[the-gneech.livejournal.com]

Not yet, but I'm all ears!

-TG

[mg4h.livejournal.com]

When you first start repaying your mortgage, you're probably paying about 5% of the principal, and the rest is going towards the interest. This sucks mightily. Assuming you have no other higher debt (defined by higher interest rate, or "bad" debt like credit cards), you can shave off years on your mortgage if you pay an extra payment a year. It doesn't seem like much, but it can really add up over time.

You can either add an extra $20-50 per month in your payment, or write a few larger ones throughout the year. If you want to do a ballpark, try out a loan calculator for an idea on how much faster it will go. I found one at this (http://www.locallender.info/consumer-banking/mortgage/mortgage-calculator-extra-payment.asp) lovely site.

At my current rate, I should be paying my mortgage off about 5 years early (on a 30 year term). And that's not assuming I don't pour more into it as I finish paying off my other debt (stupid student loan higher rate grumble).

If you do even $20 more a month, you can often trade that in a budget for a few more home-brought lunches, or going less often per month.

[maxgoof.livejournal.com]

Basically, if you make an extra monthly payment, each year, that payment comes directly off the principal, with no interest.

This means the following year, you pay less in interest on each payment, and you pay off more of your principal. Put in an extra payment that year, and the interest amount drops further still.

Say you get a 30 year mortage. And say for the first twelve years, you put in an extra payment each year. So, you will have made 13 years of payments in 12 years. You will have reduced your mortgage by one year, and still have 17 years of payments left, right?

WRONG!!

You only have 3 more years, or so left. Your early payments reduced your principle so much, that that extra year of payments translated to years of interest. and effectively reduced your mortage term by 10 years.

Neat, huh?

[the-gneech.livejournal.com]

But it's only the interest that's tax deductible, right? So doesn't that make your tax bite go up?

-TG

[maxgoof.livejournal.com]

Hey, which would you rather pay: the interest, or the tax on the interest?

[mg4h.livejournal.com]

Exactly what maxgoof said. We got around having PMI by getting the rest of our mortgage in a line of credit, knowing we could pay it off later, sooner. That unfortunately had a fluctuating APR, and it kept going up, slowly, over time. I got an offer to change that to a secured line of credit card debt, but at a much lower fixed rate. We took a hit to the amount we deducted, yes - but the interest per year was more than halved. The tax hit on the interest was maybe $50, but the interest was 20 times that.

Paying off debt is *always* good, unless the rate is incredibly low, or you haven't put away for retirement. By the way - put stuff away for retirement if you haven't yet, you'll want that to pay for real estate taxes when you DO retire :)

[hantamouse.livejournal.com]

But, if you put all those extra payments into a stock mutual fund instead, you will (far more often than not) make more interest than your morgage is costing you. You keep the tax deduction, let your profits make the last ten years of payments, and still have wealth left over.

[maxgoof.livejournal.com]

"Oh, and you get to deduct your state and local taxes too, which means you have to get those done first, before you do your federal taxes."

Not exactly true. If you file electronically, most states require the federal to be accepted first, before they will even look at your return.

The usual method is to claim what was withheld in state and local taxes, and any [refund from/additional tax due to] the state gets [added to/subtracted from] your taxable income the following year.

[mg4h.livejournal.com]

I guess PA is strange then. They don't care what my other taxes are generally.

Then again, they're usually bang-on for what is withheld from my paycheck, but they don't know about my interest checking account total, so I usually have to send them a few bucks every year.

[maxgoof.livejournal.com]

It isn't a matter of what my taxes are to the feds. It's a matter of what my adjusted gross wages are.

See, Ohio doesn't have copies of the W-2 already like the IRS does, and so they wait for the fed to approved the return electronically so they will know that the amounts shown for gross wages is correct.

[mg4h.livejournal.com]

How odd. Oh well, if all the states were the same, we wouldn't have the states, now would we?

*mutters about Articles of Confederation fun'n'games*

;)