How Does A Principal Payment On My Mortgage Affect My Taxes? How ...

19?May
2011

Question: I am in the process of buying a house, which means I will be paying mortgage for years to come. What i wish to understand is how does the principle payment on my mortgage make a difference on my tax percentage? Does it or not? I have been discussing this question with many, but none have provided an answer that makes sense and has satisfied me. Another point that leaves me confused is how do I handle the transaction? How do I meet the expenses over a period of time and make sure it does not lead to my paying higher rates of tax? Thank you!

Answer: The first thing you need to do is calculate the monthly payments for the mortgage taken. Principal amount, interest, taxes and insurance will all be a factor on this. The calculation will reveal the principal amount and interest payment. What basically happens is that principal amount that you pay determines how much tax you pay. If you pay off the principal amount within the stipulated time, then you are eligible for lesser tax deduction and vice versa. You will accrue lesser interest for the months to come in spite of having cleared off the principal which is a large sum of money.

Most of the mortgage lenders don?t want your principal amount to go beyond 28% of your monthly gross income. For one thing, mortgage is the cheapest money you are eligible to get, but what happens is you are getting caught in the tax web irrespective of how much you pay off. Even if you don?t get any relief on the tax front, the rate will be far lesser and so won?t take a toll on you.

The impressive interest rates on the other hand will act as savings for the years to come, beating inflation. At the end of the day, no matter how much you lose against tax, you will still have enough to tide you over. You will continue to save money, so don?t worry about the tax you end up paying on the mortgage!

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Source: http://www.financeninvestments.com/loans-and-mortgages/how-does-mortgage-affect-my-taxes.html

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