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Mortgage Tax Deduction Calculator

The ability to deduct mortgage interest expense and property taxes from your income when determining your federal tax bill is one of the main benefits of buying a home and having a mortgage. Calculate the mortgage tax deduction benefit based on mortgage type and amount, interest rate and your tax bracket. For fixed rate mortgages, the graph below the table shows how the annual and average monthly tax deduction benefit change as your interest expense goes down over the term of the mortgage

Inputs
Outputs
 
 
The total interest expense income tax deduction benefit for the first year of the mortgage
 
Average monthly interest expense income tax deduction benefit for the first year of the mortgage
 
The interest expense income tax deduction is a tax benefit that offsets some of your total monthly housing expense
 
The total interest expense income tax deduction benefit over the life of the mortgage
 
 
 
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Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
 
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Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
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Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
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Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
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Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
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Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
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Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
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Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
While we pride ourselves on the quality and breadth of the FREEandCLEAR mortgage calculators please note that they should be used for informational purposes only. Our calculators rely on assumptions by us and inputs and assumptions provided by you, which may be inaccurate. The outputs from our calculators are estimates only and should not be used as the sole basis for making any financial decisions. Always consult multiple financial professionals when determining the mortgage size and program that is appropriate for you.

What You Should Know About the Mortgage Tax Deduction Benefit

1

What Housing Expenses Are Tax Deductible?

Borrowers can deduct the interest expense on up to $1,000,000 in mortgages on a primary or second / vacation home.  For example, if you have a $1,300,000 mortgage, interest expense on $1,000,000 of the loan is tax deductible while the interest expense on the remaining $300,000 of the loan is not tax deductible.  Property taxes and mortgage insurance costs are also tax deductible according to the federal tax code.  Additionally, the interest expense on a home equity loan or line of credit (HELOC) up to $100,000 is usually tax deductible and there are circumstances where the interest expense on home equity loans or HELOCs above $100,000 is also tax deductible.  Borrowers should consult a tax professional to determine the mortgage tax deductions they qualify for.

2

How the Mortgage Tax Deduction Works

An income tax deduction does not directly reduce the amount of taxes you owe the government on a dollar-for-dollar basis.  Instead, a tax deduction reduces the gross income figure used to calculate how much income tax you owe.  For example, if you spend $20,000 on mortgage interest, your tax bill is not reduced by $20,000.  Instead, the gross income figure used to calculate your tax bill is reduced by $20,000 which means you pay less taxes, just not on a dollar-for-dollar basis.  The amount by which your tax bill is reduced depends on your income tax rate with the higher your tax rate, the greater your tax deduction and more money you save.  It is also important to highlight that the mortgage tax deduction benefit does not result in borrowers receiving a monthly check or money from the government.  Instead, as a result of the mortgage tax deduction borrowers pay lower income taxes or may receive a refund when they file their tax returns.

3

Your Mortgage Tax Deduction Changes Over the Course of Your Loan

Because of the way mortgage amortization works, you pay more interest expense at the beginning of your mortgage term than you do toward the end of your mortgage.  Even though your mortgage payment may not change, the amount of interest you pay decreases a little with every payment and declines every year while the amount of principal you pay increases every year.  Because your mortgage tax deduction is based on interest expense, your tax benefit gradually declines as you pay less interest over the course of your mortgage.

4

A Tax Credit is Different Than a Tax Deduction

In contrast to a tax deduction, a tax credit reduces the amount of taxes you owe on a dollar for dollar basis.  Certain home buyer assistance programs, such as the Mortgage Credit Certificate (MCC) Program, provide low-to-moderate income borrowers a tax credit for a portion of their mortgage interest expense.  The tax credit reduces your federal income tax bill on a dollar for dollar basis which makes it easier to qualify for a mortgage. For example, if your annual federal income taxes are $10,000 and you receive a $5,000 mortgage credit certificate, you only owe $5,000 in federal income taxes which means you can afford a larger mortgage.

More FREEandCLEAR Mortgage Resources

Resources

Mortgage Tax Deduction Overview

Understand how the mortgage tax deduction works including an informative example that demonstrates how the tax benefit offsets your total monthly housing expense

Mortgage Guides

Total Monthly Housing Expense Overview

Review the numerous costs that go into total monthly housing expense including your mortgage payment, property taxes and insurance 

Resources

Mortgage Rates

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