|Loan Repayment Term:||30 Yrs 0 Mts||26 Yrs 4 Mts|
|Time Saved:||3 Yrs 8 Mts|
|Total Interests Paid:||$141,685.69||$121,893.23|
|Income Tax Savings||Standard||Bi-Weekly|
|Tax Saving Losses:||$4,948.12|
(Int. Savings - Tax Saving Losses):
Are You Itemizing Your Income Tax Deductions?
In 2021 the standard deduction for single filers & married filing separately is $12,550. Head of households can deduct $18,800 whie married joint filers can deduct $25,100. With the higher deductions initially introduced by the 2017 TCJA few filers itemize income tax deductions. If you do not plan on itemizing set your marginal tax rate to zero to remove it's impact on your calculation.
When you set up your mortgage payment repayment plan, you can choose between a standard repayment plan or a bi-weekly repayment plan. With the standard plan, it would take you 30 years to repay the loan while a biweekly plan will take 26 years and 4 months. This will save you 3 years and 8 months. But, the savings doesn't end there.
If you took out a $250000.00 loan with an interest rate of 3.250% and your federal tax rate is 25.000%, you can expect to pay $1,088.02 per month, while a bi-weekly payment plan will call for a payment of $544.01 every other week. As a result, you will pay only $121,893.23 in interest with the bi-weekly schedule rather than $141,685.69 with the standard payment plan. While this will result in a loss of $4,948.12 in tax benefits, you will still save a total of $14,844.35 with the bi-weekly plan.
The 2018 tax bill increased the standard deduction to $12,000 for individuals and $24,000 for married couples filing jointly. Before the standard deduction was increased 70% of Americans did not itemize their taxes. Many homeowners will not pay enough mortgage interest, property taxes & local income tax to justify itemizing the expenses - so the above interest savings may not lead to income tax savings losses for many Americans.
The new tax law also caps the deductiblility of property taxes combined with either state income or sales tax at $10,000. The mortgage interest deductibility limit was also lowered from the interest on $1 million in debt to the interest on $750,000 in debt. Mortgages originated before 2018 will remain grandfathered into the older limit & mortgage refinancing of homes which had the old limit will also retain the old limit on the new refi loan.