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Benefits of Secured Loans - Comes as Freebie for the Borrowers
It is often seen that as years pass, newer alternatives of older
things crop up while the older things fall into oblivion.
Secured loans however have withstood competition from a whole
range of financial products such as unsecured loans....
Corporate Loans - Funding Industrial Growth
If individuals thought that they were the only ones who had the use for loans, then corporate loans will show them that they are incorrect. The corporates, who are deemed to have a large surplus of cash, too find themselves at the mercy of the loan...
Guaranteed Online Personal Loans
Guaranteed personal loans can be used for a number of things from vacations to a new home entertainment system. Guaranteed online personal loans can be used to pay off high interest credit cards. Many credit card companies will raise the interest...
Home Equity Loans – Research Your Lender Carefully
Real estate prices are rising across the country, and Americans are tapping into their home equity like never before. Americans took out $431 billion in home equity loans in 2004, and that amount may increase in 2005. The reasons vary; some are...
Typical Rates & Fees Associated with Business Loans
When acquiring a business loan, one can expect to pay different rates and fees based upon the years the business has been in operation, the owner's personal credit history, the business's credit history, and whether or not the loan is secured or...
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Home Loans and Mortgages – The Myth of Tax Deductible Interest
Home ownership has risen sharply in recent years, and the percentage of Americans who own their own homes is approaching a record seventy percent. That’s a good thing; we’d all rather live in our own home than consider the alternatives. The most common method of purchasing a home is by taking out a mortgage. Mortgage types vary, but most loans consist of some variation of a thirty-year loan, with interest applied to the purchase price. This added interest can easily cause the total sum paid to be double or triple the actual purchase price of the home. This is an unavoidable cost of borrowing a large sum of money over a long period of time, but it still causes alarm at closing time when the borrower realizes that his or her $150,000 home will cost a half million dollars by the time the loan is paid off. At this point, the lender usually points out that the interest is tax deductible, and the borrower offers a sigh of relief. Is the deductibility of the interest really that big of a deal? Does anyone really benefit from it?
Without question, the best way to pay for a home is to pay cash. It’s the cheapest way to buy a home and once you pay for it, you are done. Few Americans are in a position to do so, however. Homes are expensive. And depending on economic conditions, it may actually be cheaper to take out a loan than to pay cash. If you could borrow money for thirty years at six percent and invest money at ten percent, you’d be better off borrowing and investing instead of paying cash. But lenders and others who mean well often mention that tax deduction as though it should be a deciding factor in how a home is purchased.
The interest on a primary residence is deductible on loans of up
to one million dollars. That means that the amount of interest paid in a calendar year can be deducted from taxable income, effectively reducing the amount of income tax paid. More often than not, this turns out to be of little benefit to taxpayers. It’s not as though the Government is paying your interest. For the typical American taxpayer who pays in the 28% tax bracket, the deduction amounts to a rebate of twenty eight cents for every dollar paid in interest. Complicating matters is the fact that this is only true for that portion of the interest that exceeds the standard deduction allowed for every taxpayer that files. That deduction, currently $10,000 per married couple, is usually greater than the amount of mortgage interest most couples pay during the year. What this means is that many, if not most, Americans derive no tax benefit from their mortgage interest whatsoever.
Of course, homeowners who pay more than 28% of their income in taxes or those who own homes with large mortgages can benefit more from the tax deduction. Most American homeowners, on the other hand, get nothing from it. The tax deduction isn’t entirely insignificant, but it shouldn’t be a deciding factor in determining how to pay for a home. Prospective buyers should realize that while the deduction is a potential perk of taking out a mortgage, the likely tax benefit from it ranges from “very small” to “nothing at all.”
About the Author
©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including HomeEquityHelp.com, a site devoted to information regarding mortgages and home equity loans .
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