Mortgage Pay Off Early » refinance http://financialinformationservice.com How to pay off mortgage early Fri, 15 Jul 2011 01:20:05 +0000 en hourly 1 http://wordpress.org/?v=3.2.1 How Prepaying Effects Your Taxes And Deductions http://financialinformationservice.com/how-prepaying-effects-your-taxes-and-deductions/ http://financialinformationservice.com/how-prepaying-effects-your-taxes-and-deductions/#comments Sat, 07 Nov 2009 17:24:39 +0000 jmc16 http://financialinformationservice.com/?p=41 You may be wondering how prepaying will effect your taxes and deductions. Lets say you’re filing jointly and you are in the 28% federal tax bracket. For every dollar in interest you pay out, Uncle Sam will only pick up 28 cents and you will net spend 72 cents. However, if you can avoid paying that dollar in interest (by prepaying naturally) you will save that dollar! What makes more sense (or should I say cents) saving a dollar or saving 28 cents??

It seems many people get hung up over the deductions issue. If the deduction is so important, why do people refinance for a lower rate? They would get a bigger deduction with a 10% mortgage instead of a 5%, don’t you agree? It makes more sense to me to have NO mortgage and spend nothing than to have to spend money on a 5% but get something back.

Let’s see how prepaying $200 a month on our $250,000 mortgage will affect your taxes. By not prepaying you would have a first year interest deduction of  $17,415.24. When you prepay $200 a month, your interest deduction that year would be $14,849.36, a difference of $2,565.88. By making the prepayment you will end up saving over $11,314.52 in interest over the life of the loan. You will also cut 9 months off of the mortgage too.

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