See: Mortgage. See: Mortgage Rate. See: Adjustable-Rate Mortgage (ARM).
What's the magic sauce in a mortgage? Rhymes with "shmax shmeductibility."
Yep, the interest comes right off the top. So if you have an interest-only mortgage of $300,000 and you're paying 5% interest, then you're paying $15,000 a year in fully deductible interest.
You make $100,000 as a forensic dentist, and on your last $30,000 in earnings, you pay 30% tax. But now, as far as the tax collector cares, you don't make $100,000. You make $85,000, because that $15,000 in interest comes right off of your taxable earnings. So whereas normally from $70,001 to $100,000, you'd pay 30% of that $30,000, or $9,000 in taxes, now, you pay 30% on the $15,000, from $70,001 to $85,000, or $4,500.
You save $4,500 in taxes. Or, said another way, instead of it feeling like $15,000 in mortgage interest, it feels more like $10,500 in mortgage interest costs.
Welcome to the American Dream. Pay at the window on the right.
Related or Semi-related Video
Finance: What is a second mortgage?4 Views
Finance allah shmoop What is a second mortgage Okay you
know what a first mortgages it's otherwise cleverly named what
is called it is called oh yeah Mortgage it's Just
a loan on a house You paid four hundred grand
for this baby Hundred grand down two hundred fifty grand
in a first mortgage And they're still fifty grand You
owe well where's that fifty large coming from the bank
wouldn't loan you any more on a first mortgage that
was costing you six percent a year Tio you know
to rent that money So you had to get a
second mortgage which should things go awry and you become
a statistic Well that's it's fully behind the first mortgage
in the priority stack of payback So in a bankruptcy
situation the first mortgage first what's called a first mortgage
get it fully paid along with any fees associated with
it and back interest accrued and any other things that
are associated with that first mortgage it stands in line
first in priority Then any cash leftover gets attributed to
that second mortgage So not surprisingly second mortgage money costs
a lot more to rent then first mortgage money because
the risk of non payment in a bad situation is
meaningful E higher especially when the borrowed does this for 00:01:25.136 --> [endTime] a living
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