We are always asked, can a buyer expect higher tax refunds?  Yes, in most cases the benefits of home ownership in addition to equity build-up, include the potential for higher tax refunds.

Interest paid on a mortgage as well as, point paid for your loan and Property Taxes, are tax deductible if you itemize on your tax return.   This results in higher refunds, since the deductions bring homeowners into a lower tax bracket.

 Definitions:

Mortgage amount
Original or expected balance for your mortgage. Taxpayers can deduct the interest paid on first and second mortgages up to $1,000,000 in mortgage debt (the limit is $500,000 if married and filing separately). Any interest paid on first or second mortgages over this amount is not tax deductible. Home equity loans are limited to $100,000 or the amount of equity you have in your home.

Interest rate
Annual interest rate for this mortgage.

Interest rate after taxes
Annual effective interest rate, after taxes are taken into account. Please note that in addition to the $1,000,000 mortgage debt limit; this calculator assumes that your itemized deductions will exceed the standard deduction for your income tax filing status. If your itemized deductions don’t exceed your standard deduction, the benefit of deducting the interest on your home will be reduced or eliminated.

Term in years
The number of years over which you will repay this loan. The most common mortgage terms are 15 years and 30 years.

Monthly payment
Monthly principal and interest payment (PI).

Loan origination percent
The percent of your loan charged as a loan origination fee. For example, a 1% fee on a $120,000 loan would cost $1,200.

Discount points
Total number of “points” purchased to reduce your mortgage’s interest rate. Each “point” costs 1% of your loan amount. As long as the points paid are not a broker’s commission, they are considered tax deductible in the year that they were paid.