Does anyone know of an online calculator to estimate how expensive a house I can afford TAKING INTO ACCOUNT THE TAX DEDUCTABILITY OF INTEREST PAYMENTS? It seems like all the calculators I've looked at leave this factor out. Thanks.
2007-06-13 01:20:39 · 7 answers · asked by jbortfeld 2 in Business & Finance ➔ Personal Finance
Thanks everyone. And thanks especially for your concerns that I'll overspend. I'm financially conservative to start so finding the theoretical max is more of an interesting thought experiment.
2007-06-13 02:03:55 · update #1
Regarding the 28% rule from jim06744, how much should go to a car payment? (since I live in NYC and can presumably wrap the transportation allocation, minus the token $76 monthly subway fare, to my home expense budget).
2007-06-13 04:02:03 · update #2
The reason you do not find the interest calculation in online estimators is that home lenders do not take that into account when figuring your mortgage. You can't use the interest deduction to your advantage on your home loan application, so it doesn't help you afford more home.
Hope this helps.
2007-06-13 08:40:01 · answer #1 · answered by Chris 3 · 1⤊ 0⤋
It is not possible to take into account the tax deductibility of interest payments, since no calculator knows your personal income tax situation, nor does it know the income tax rate you will pay.
That being said, these calculators are ONLY a guideline to what you might consider buying. Do NOT trust them as the 'end all' to what you might buy.
Some of them calculate that you can afford a mortgage payment so high that you will only have enough money left to dine out at McDonalds by dumpster diving.
Use your own financial situation to determine how much mortgage payment, etc. you can comfortably afford.
2007-06-13 01:57:59 · answer #2 · answered by acermill 7 · 1⤊ 0⤋
That's because tax deductibility varies widely by person, and the amount of interest you paid (and thus could deduct) depends on the loan amount, down payment, interest rate, and where you are in the mortgage (beginning, middle, or end). In other words, they don't include it in their calculator since they would have to ask you a million questions.
In my humble opinion, you should stick with the usual calculators, since you should have a cushion on your ability to afford a mortgage. If you are on the edge of affordability and one little things happens to you, you lose the house (and your credit rating). Consider the deductibility of mortgage interest to be icing on the cake.
2007-06-13 01:27:01 · answer #3 · answered by MathProf 4 · 1⤊ 0⤋
Simply put, if you have other deductible items, the interest should be 100% deductible. How much it saves you on your taxes is what is unknown. If you are in the 15% tax bracket, you will save 15 cents on every dollar you spend on interest. That's kinda how it works. Dont buy a house based on the tax savings.
2007-06-13 01:46:30 · answer #4 · answered by hirebookkeeper 6 · 1⤊ 0⤋
Seems to me you're trying to afford more than you can. Are you sure you want to take on a debt that may end up causing you grief?
There are an awful lot of people defaulting on their mortgages right now mostly, I believe, because banks are willing to finance people in an ill-advised manner. Keep in mind that if you can't make your payments, you'll be the loser, not the bank.
2007-06-13 01:34:04 · answer #5 · answered by walyank 6 · 1⤊ 0⤋
old rule of thumb mortgage payt should be no more than 28% of your monthly take home pay
2007-06-13 03:45:43 · answer #6 · answered by jim06744 5 · 1⤊ 0⤋
http://www.quickenloans.com/mortgage_calculator/home_buying_calculators/index.html?lid=30
2007-06-13 01:26:38 · answer #7 · answered by Mustbe 6 · 1⤊ 0⤋