In the "Moronic Harlem buyers" thread a few people ventured mortgage deduction numbers. They don't seem to match the results of the online calculator that I found (Bankrate.com), and I want to know who's right and if somebody has more specific input as to NYS tax rates and etc., so that everybody in this forum can calculate the mortgage deduction better. The Harlem buyers under scrutiny were... [more]
In the "Moronic Harlem buyers" thread a few people ventured mortgage deduction numbers. They don't seem to match the results of the online calculator that I found (Bankrate.com), and I want to know who's right and if somebody has more specific input as to NYS tax rates and etc., so that everybody in this forum can calculate the mortgage deduction better.
The Harlem buyers under scrutiny were spending a hair below 4K in monthly buying expenses, 3,200 aprox. in mortgage and 750 in CC. Right? I ran those amounts through the bankrate calculator, as follows:
mortgage amount: 565,000
interest rate: 5.5%
mortgage payments: 3,208
Fed tax rate: 25%
State tax rate: 8%
Yearly deduction: 11,326
Meaning $944 per month, or post tax mortgage payments of 2,264 (total payments of 3,014 including CC)
However, joedavis quoted 2,350 total payments and inonada quoted 1,800 post tax mortgage payments. Why? Who is right? How much is really the mortgage deduction and who much does your Fed rate affect that? Also: does the benefit get somewhat offset by the fact that you have to itemize instead of claiming standard deductions?
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Response by NYCMatt
about 16 years ago
Posts: 7523
Member since: May 2009
Not everyone has a federal income tax rate of just 25%.
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Response by inonada
about 16 years ago
Posts: 7952
Member since: Oct 2008
The difference between your bankrate number and joedavis's number is likely due to a small difference in assumptions. The financing in the article was quoted at 95% ($594K loan), and he may have done a rate of 5% to get to $4K. My $1800 number was just the interest portion of the payments, adjusted for the tax deduction, (probably off a quick-and-dirty 100% financing calculation) because I was comparing the money "flushed down the toilet" in buying vs renting, as the portion used to pay principal isn't being "flushed". For total payments, yours and joedavis's numbers are in the right ballpark.
The general idea is that the interest paid is deductible. With $565K at 5.5%, you're paying about $2600 a month in interest to start with. The effect of this deduction is very specific to individual situations. Whether or not you're in AMT will effect things, if your income is beyond a certain level then I believe state and local deductions phase out to only 50%, etc. Basically, a complicated mess. But for people at the $625K purchase level, I think the numbers you used are in the right ballpark.
On itemization, you are right in that the benefit would not "kick in" until you went past the standard deduction. However, for most people buying $625K, state and local income taxes are probably already above the standard deduction.
If you really want to know what happens in your situation, your best bet is to figure out the interest paid and re-run last year's taxes in TurboTax.
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Response by inonada
about 16 years ago
Posts: 7952
Member since: Oct 2008
Crap, got pulled over by grammar police. "will effect things" => "will affect things". There, all better.
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Response by joedavis
about 16 years ago
Posts: 703
Member since: Aug 2007
assmpns
4.5% interest fha check tdbank
this is their recent offer for a 30 yr fixed 0 points upto 729k
nyc + ny taxes + federal
i ran it off mine -- theirs could be lower but i have deductions and they dont
one way to look at it is:
If you can take a 96.5% FHA loan for 30 years with 1 point for 4.25%
The 3.5% downpayment is nearly inconsequential relative to the closing /transaction costs
so basically you are almost in for no down
The FHA loan is assumable
Now let us say that interest rates jump (they are at a 100 year low lower with above assmpns)
and prices decline
Since the FHA loan is assumable and at much lower rates than what I expect will be the rate as soon as the govt meddling is over, then one has min transaction costs to buy/sell the property and the value of the property is indexed to the loan balance/payment combo
Example
Let's say they have 100k borrowed at 4.5% assumable
now interest rates go to 8% (could go higher really, but 8 was there in recent memory)
The monthly payment is 506
Imagine only about 5K on a million $ loan
If the interest rate goes to 8% then the same payment applies to a 69k loan
So, what this tells you is that your FHA assumable loan allows a marketability of almost 30% with these assmpns
If the interest rate goes to 10% which I would not rule out in the current conditions then the loan value is 57.6k
so a 40% adjustment would break even
I was amused recently when someone wrote that they prefer to buy when the price is low but rates are high because they can always refinance later
Sure
and you are looking at the lowest rates ever, assumable
of course this does not apply to the high flying mult-million $ apt the typical SE arguers seems to have in mind
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Response by nyc_sport
about 16 years ago
Posts: 809
Member since: Jan 2009
Other than the 5% down payment, there is little benefit to FHA loans. In most instances, they end up more expensive than "ordinary" loans for borrows with good credit because of the 1.5% up front and 0.5% annual insurance premium.
Most mortgages can be assumed, if you go through the hassle of doing so and, in most cases, pay some transfer fees and costs. Most sellers don't want to get involved, and there are usually fees involved and the buyer probably will need additional money beyond what is left on your mortgage, which may present complexities. I assumed a very large mortgage on my apartment -- not to get a better interest rate but to avoid the mortgage recording tax.
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Response by bhh
about 16 years ago
Posts: 120
Member since: Sep 2008
I find this concept of an assumable loan fascinating. When interest rates rise, the ability to market an apartment with an accompanying mortgage interest rate substantially below market rate could be a huge plus if the market stays soft for an extended period of time. I do believe that if rising interest rates environment is not accompanied by equivalent average wage growth, we will see further erosion of home prices. An assumable loan could be one mechanism to help hedge against that particular set of circumstances. A few questions.
Are non-FHA loans assumable?
Can you put down 20%+ with a FHA loan and avoid PMI insurance and the other additional expenses?
What other "barriers of entry" are there to FHA loans vs a typical conforming 15 or 30 year?
Not everyone has a federal income tax rate of just 25%.
The difference between your bankrate number and joedavis's number is likely due to a small difference in assumptions. The financing in the article was quoted at 95% ($594K loan), and he may have done a rate of 5% to get to $4K. My $1800 number was just the interest portion of the payments, adjusted for the tax deduction, (probably off a quick-and-dirty 100% financing calculation) because I was comparing the money "flushed down the toilet" in buying vs renting, as the portion used to pay principal isn't being "flushed". For total payments, yours and joedavis's numbers are in the right ballpark.
The general idea is that the interest paid is deductible. With $565K at 5.5%, you're paying about $2600 a month in interest to start with. The effect of this deduction is very specific to individual situations. Whether or not you're in AMT will effect things, if your income is beyond a certain level then I believe state and local deductions phase out to only 50%, etc. Basically, a complicated mess. But for people at the $625K purchase level, I think the numbers you used are in the right ballpark.
On itemization, you are right in that the benefit would not "kick in" until you went past the standard deduction. However, for most people buying $625K, state and local income taxes are probably already above the standard deduction.
If you really want to know what happens in your situation, your best bet is to figure out the interest paid and re-run last year's taxes in TurboTax.
Crap, got pulled over by grammar police. "will effect things" => "will affect things". There, all better.
assmpns
4.5% interest fha check tdbank
this is their recent offer for a 30 yr fixed 0 points upto 729k
nyc + ny taxes + federal
i ran it off mine -- theirs could be lower but i have deductions and they dont
one way to look at it is:
If you can take a 96.5% FHA loan for 30 years with 1 point for 4.25%
The 3.5% downpayment is nearly inconsequential relative to the closing /transaction costs
so basically you are almost in for no down
The FHA loan is assumable
Now let us say that interest rates jump (they are at a 100 year low lower with above assmpns)
and prices decline
Since the FHA loan is assumable and at much lower rates than what I expect will be the rate as soon as the govt meddling is over, then one has min transaction costs to buy/sell the property and the value of the property is indexed to the loan balance/payment combo
Example
Let's say they have 100k borrowed at 4.5% assumable
now interest rates go to 8% (could go higher really, but 8 was there in recent memory)
The monthly payment is 506
Imagine only about 5K on a million $ loan
If the interest rate goes to 8% then the same payment applies to a 69k loan
So, what this tells you is that your FHA assumable loan allows a marketability of almost 30% with these assmpns
If the interest rate goes to 10% which I would not rule out in the current conditions then the loan value is 57.6k
so a 40% adjustment would break even
I was amused recently when someone wrote that they prefer to buy when the price is low but rates are high because they can always refinance later
Sure
and you are looking at the lowest rates ever, assumable
of course this does not apply to the high flying mult-million $ apt the typical SE arguers seems to have in mind
Other than the 5% down payment, there is little benefit to FHA loans. In most instances, they end up more expensive than "ordinary" loans for borrows with good credit because of the 1.5% up front and 0.5% annual insurance premium.
Most mortgages can be assumed, if you go through the hassle of doing so and, in most cases, pay some transfer fees and costs. Most sellers don't want to get involved, and there are usually fees involved and the buyer probably will need additional money beyond what is left on your mortgage, which may present complexities. I assumed a very large mortgage on my apartment -- not to get a better interest rate but to avoid the mortgage recording tax.
I find this concept of an assumable loan fascinating. When interest rates rise, the ability to market an apartment with an accompanying mortgage interest rate substantially below market rate could be a huge plus if the market stays soft for an extended period of time. I do believe that if rising interest rates environment is not accompanied by equivalent average wage growth, we will see further erosion of home prices. An assumable loan could be one mechanism to help hedge against that particular set of circumstances. A few questions.
Are non-FHA loans assumable?
Can you put down 20%+ with a FHA loan and avoid PMI insurance and the other additional expenses?
What other "barriers of entry" are there to FHA loans vs a typical conforming 15 or 30 year?