Mortgage Interest Tax Deduction MythThis is a very poor idea. Yes, you do get to claim the interest that you pay on your taxes but that exact amount of interest is not credited back to you. Only a percentage of the interest that you have paid will be given back to you, or more properly stated, this amount will reduce your income against which you pay taxes. Here is an example that should illustrate how ridiculous the mortgage interest tax deduction myth is. Let’s consider a $100,000 home mortgage at 6.5% for 30 years. The interest paid on this loan in the first year would be $6,468. We’ll also assume a joint taxpayer with a $50,000 taxable income (gross income minus deductions). This $6,468 in interest paid would reduce the taxable income to $43,532. The tax paid on $50,000 is $6,774, whereas the tax paid on 43,532 is $5,799. The difference in tax is then only $975. What you then would be effectively doing is paying $6,468 in interest to a bank so that the IRS could give you back $975. Surely you wouldn’t give someone over $6,000 so that you could get back just under $1,000. There is no doubt that the small tax break is welcome for those of us that do have a home mortgage, but paying off your house as soon as possible and not paying interest makes far better financial sense. The total amount paid back to the bank in this example over 30 years would be $227,545.
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