Get Away From That Mortgage Payment

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This calculation arbitrarily assumes that 10 per cent of your mythical mortgage payment would cover homeownerís insurance and principal repay ment, with the rest going for deductible interest and property taxes. It also assumes your top tax bracket (known to accountants as your marginai tax rate) is 28 percent. If your tax bracket is higher, your tax sav ings will be correspondingly higher.

A. Your present rent
B. Multiply by 1.32
C. Equivalent monthly mortgage payment

The result (line C) is a rough estimate of the amount you could spend for monthly mortgage pay ment (principal, interest, property taxes, and home owners insurance) without being out any more money at the end of the income tax year than you are with your present rental.

Besides the tax saving, in most areas you can expect some increase in the value of your home: an additional return on your investment, known as equity buildup. There is also a growing market for eco renovations that save cash. Price trends in real estate vary with locality; brokers can estimate what might happen in your area over the next few years.

Equity represents the amount you’d have if you sold your home and paid off the liens (financial claims) against itóusually the mortgage. If you buy a $120,000 house with $25,000 down and a $95,000 mortgage, your equity the day after you move in is $25,000. Equity is the money you have invested in the house it’s like money in the bank.

If the house goes up in value by 5 percent in the next year, and your debt is paid down amortized) by a paltry $1,900 that first year, your equity has grown to $32,900 (market value, $126,000, less remaining debt, $93,100).

Equity buildup assumes, of course, that the value of real estate rises. Can you count on prices rising in your area?


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