Interest paid on a home mortgage is normally tax deductible. That is, you can subtract the total mortgage interest paid over the year in determining your taxable income. This is one advantage of buying a home. Suppose you take out a 30-year home mortgage for $250,000 at an APR of 8% compounded monthly. The mortgage payments details for the first year are given below. Suppose that your marginal tax rate is 30%. What is your actual tax savings due to mortgage payments?
Well, are they talking about 1 year saving or over the lifetime of the mortgage? For one year savings, they have already listed for you in the bottom left-hand side as $5,977.36. If they are talking about the lifetime of the mortgage over 30 years, then the total interest paid would be about $410,390.19. And if you are in 30% tax bracket, then you save: $410,390.19 x 30% =$123,117.06 over 30 years. This would have the same effect as reducing your interest rate from 8% compounded monthly to about 5.96% compounded monthly. So, obviously the mortgage would be less expensive.
Not sure if this answers your question.
