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Mortgage Real Cost Calculator,  or  "Should I pay off my mortgage?"

Thinking of paying off or prepaying your mortgage?  This tool will help you decide.  Read on...

Most people calculate the true cost of their mortgage as their interest rate, less any tax savings from an interest deduction on their tax return.  They may think, "Well, my mortgage rate is 6%, and I'm in the 25% tax bracket, so my true rate is 4.5%" (the federal government lets them write off the interest, with a 25% tax savings, so their net cost is 75% of their rate.  Essentially, they think the Federal Government pays 25% of the mortgage).  Well, that thinking is not entirely accurate.  Because the federal government gives every taxpayer the option of taking a Standard Deduction, whether they are a renter or have a mortgage, their actual tax savings may not be the 25% (or whatever their marginal rate is).   Even if they pay off their mortgage, they still get the Standard Deduction.

Furthermore, taxpayers earning over $83400 may have their Itemized Deductions limited, so their tax savings are also less than anticipated.   If your income reaches a certain level, you may not get to write off your mortgage at all! (NOTE: For 2010, this income limitation has been removed, but may return in future years, before your mortgage is paid off.)

In fact, the tax savings you receive from your mortgage interest are dependent on your income, age, filing status, and a number of other variables (including some not accounted for here).   This calculator attempts to account for some of these issues, estimating your actual tax savings from mortgage interest.

There are several numbers from your tax return needed to make the calculations.   Please refer to your last year's 1040 tax return, or estimate the values for the coming year. Leave the line blank if it does not apply.

NOTE: In order to receive an interest deduction, you must Itemize your deductions (fill out Schedule A), and file Form 1040 with the IRS.  If you filed (or plan to file) Form 1040A or 1040EZ, or you do not expect to Itemized your deductions, leave the fields that do not apply blank.

IMPORTANT!: The calculations are NOT deemed reliable! For informational purposes only.  Not to be used for tax advice.  Consult your tax adviser before making any decisions based on these figures.  These figures may not be accurate for your situation. Tax laws are complex, and this calculator may not have accounted for every detail on your return, or calculated the taxes correctly. Use at your own risk!
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