Why Don’t Mortgage Calculators Factor Tax Break?

[SK in CV]

Yes, you are missing something.

The calculation DOES factor in the tax deduction.

If the tax deduction was not factored in, the limit would be lower than 28%. It factors in everything. Cost of food, clothing, transportation, entertainment, and yes, taxes too. It factors in everything that isn’t principle on the loan, interest on the loan, property taxes and insurance.

It’s not a precise calculation. It is simply a percentage that historically works.

[edna_mode]

Agree with scaredy. Well, until they change the marginal tax rates to something higher.

Realize that many props in SD will have HOA, mello-roos (these are hundreds $$/month), in addition to the “ITI” of PITI which renters don’t pay directly. Usually people buy a house bigger than they rent, and forget to scale up utilities and maintenance costs into their monthly nut.

my rule of thumb: At 6%/yr interest, which is 0.5%/month — it takes $500 for every $100,000 principal to just cover mortgage — and I roll in the various insurances (homeowners, PMI if applic) here to balance out the tax advantage (at today’s low rates). Property tax in SD is about 1.2%/yr, so 0.1%/month, or $100/mo per $1000,000 principal. So about $600/mo carrying cost per $100,000 house. Haven’t been too far off yet.

[edna_mode]

Agree with scaredy. Well, until they change the marginal tax rates to something higher.

Realize that many props in SD will have HOA, mello-roos (these are hundreds $$/month), in addition to the “ITI” of PITI which renters don’t pay directly. Usually people buy a house bigger than they rent, and forget to scale up utilities and maintenance costs into their monthly nut.

my rule of thumb: At 6%/yr interest, which is 0.5%/month — it takes $500 for every $100,000 principal to just cover mortgage — and I roll in the various insurances (homeowners, PMI if applic) here to balance out the tax advantage (at today’s low rates). Property tax in SD is about 1.2%/yr, so 0.1%/month, or $100/mo per $1000,000 principal. So about $600/mo carrying cost per $100,000 house. Haven’t been too far off yet.

[edna_mode]

Agree with scaredy. Well, until they change the marginal tax rates to something higher.

Realize that many props in SD will have HOA, mello-roos (these are hundreds $$/month), in addition to the “ITI” of PITI which renters don’t pay directly. Usually people buy a house bigger than they rent, and forget to scale up utilities and maintenance costs into their monthly nut.

my rule of thumb: At 6%/yr interest, which is 0.5%/month — it takes $500 for every $100,000 principal to just cover mortgage — and I roll in the various insurances (homeowners, PMI if applic) here to balance out the tax advantage (at today’s low rates). Property tax in SD is about 1.2%/yr, so 0.1%/month, or $100/mo per $1000,000 principal. So about $600/mo carrying cost per $100,000 house. Haven’t been too far off yet.

[edna_mode]

Agree with scaredy. Well, until they change the marginal tax rates to something higher.

Realize that many props in SD will have HOA, mello-roos (these are hundreds $$/month), in addition to the “ITI” of PITI which renters don’t pay directly. Usually people buy a house bigger than they rent, and forget to scale up utilities and maintenance costs into their monthly nut.

my rule of thumb: At 6%/yr interest, which is 0.5%/month — it takes $500 for every $100,000 principal to just cover mortgage — and I roll in the various insurances (homeowners, PMI if applic) here to balance out the tax advantage (at today’s low rates). Property tax in SD is about 1.2%/yr, so 0.1%/month, or $100/mo per $1000,000 principal. So about $600/mo carrying cost per $100,000 house. Haven’t been too far off yet.

[edna_mode]

Agree with scaredy. Well, until they change the marginal tax rates to something higher.

Realize that many props in SD will have HOA, mello-roos (these are hundreds $$/month), in addition to the “ITI” of PITI which renters don’t pay directly. Usually people buy a house bigger than they rent, and forget to scale up utilities and maintenance costs into their monthly nut.

my rule of thumb: At 6%/yr interest, which is 0.5%/month — it takes $500 for every $100,000 principal to just cover mortgage — and I roll in the various insurances (homeowners, PMI if applic) here to balance out the tax advantage (at today’s low rates). Property tax in SD is about 1.2%/yr, so 0.1%/month, or $100/mo per $1000,000 principal. So about $600/mo carrying cost per $100,000 house. Haven’t been too far off yet.

[WaitingToExhale]

[quote=SK in CV]Yes, you are missing something.

The calculation DOES factor in the tax deduction.

If the tax deduction was not factored in, the limit would be lower than 28%. It factors in everything. Cost of food, clothing, transportation, entertainment, and yes, taxes too. It factors in everything that isn’t principle on the loan, interest on the loan, property taxes and insurance.

It’s not a precise calculation. It is simply a percentage that historically works.[/quote]

You’re absolutely right that it isn’t a precise calculation; that makes total sense. I was just considering that since the deduction specifically benefits higher tax brackets/bigger mortgages, and does NOT benefit low brackets/smaller mortgages, it results in a significant difference that is not captured in the typical affordability calculators.

From a quantitative viewpoint of what percent of gross income the mortgage holder has available on a yearly basis, the deduction should result in a significantly greater than 28% proportion being available to those folks. From your (and others’) comments, it seems more an empirically derived metric of probability of default, which is perfectly reasonable.

[WaitingToExhale]

[quote=SK in CV]Yes, you are missing something.

The calculation DOES factor in the tax deduction.

If the tax deduction was not factored in, the limit would be lower than 28%. It factors in everything. Cost of food, clothing, transportation, entertainment, and yes, taxes too. It factors in everything that isn’t principle on the loan, interest on the loan, property taxes and insurance.

It’s not a precise calculation. It is simply a percentage that historically works.[/quote]

You’re absolutely right that it isn’t a precise calculation; that makes total sense. I was just considering that since the deduction specifically benefits higher tax brackets/bigger mortgages, and does NOT benefit low brackets/smaller mortgages, it results in a significant difference that is not captured in the typical affordability calculators.

From a quantitative viewpoint of what percent of gross income the mortgage holder has available on a yearly basis, the deduction should result in a significantly greater than 28% proportion being available to those folks. From your (and others’) comments, it seems more an empirically derived metric of probability of default, which is perfectly reasonable.

[WaitingToExhale]

[quote=SK in CV]Yes, you are missing something.

The calculation DOES factor in the tax deduction.

If the tax deduction was not factored in, the limit would be lower than 28%. It factors in everything. Cost of food, clothing, transportation, entertainment, and yes, taxes too. It factors in everything that isn’t principle on the loan, interest on the loan, property taxes and insurance.

It’s not a precise calculation. It is simply a percentage that historically works.[/quote]

You’re absolutely right that it isn’t a precise calculation; that makes total sense. I was just considering that since the deduction specifically benefits higher tax brackets/bigger mortgages, and does NOT benefit low brackets/smaller mortgages, it results in a significant difference that is not captured in the typical affordability calculators.

From a quantitative viewpoint of what percent of gross income the mortgage holder has available on a yearly basis, the deduction should result in a significantly greater than 28% proportion being available to those folks. From your (and others’) comments, it seems more an empirically derived metric of probability of default, which is perfectly reasonable.

[WaitingToExhale]

[quote=SK in CV]Yes, you are missing something.

The calculation DOES factor in the tax deduction.

If the tax deduction was not factored in, the limit would be lower than 28%. It factors in everything. Cost of food, clothing, transportation, entertainment, and yes, taxes too. It factors in everything that isn’t principle on the loan, interest on the loan, property taxes and insurance.

It’s not a precise calculation. It is simply a percentage that historically works.[/quote]

You’re absolutely right that it isn’t a precise calculation; that makes total sense. I was just considering that since the deduction specifically benefits higher tax brackets/bigger mortgages, and does NOT benefit low brackets/smaller mortgages, it results in a significant difference that is not captured in the typical affordability calculators.

From a quantitative viewpoint of what percent of gross income the mortgage holder has available on a yearly basis, the deduction should result in a significantly greater than 28% proportion being available to those folks. From your (and others’) comments, it seems more an empirically derived metric of probability of default, which is perfectly reasonable.

[WaitingToExhale]

[quote=SK in CV]Yes, you are missing something.

The calculation DOES factor in the tax deduction.

If the tax deduction was not factored in, the limit would be lower than 28%. It factors in everything. Cost of food, clothing, transportation, entertainment, and yes, taxes too. It factors in everything that isn’t principle on the loan, interest on the loan, property taxes and insurance.

It’s not a precise calculation. It is simply a percentage that historically works.[/quote]

You’re absolutely right that it isn’t a precise calculation; that makes total sense. I was just considering that since the deduction specifically benefits higher tax brackets/bigger mortgages, and does NOT benefit low brackets/smaller mortgages, it results in a significant difference that is not captured in the typical affordability calculators.

From a quantitative viewpoint of what percent of gross income the mortgage holder has available on a yearly basis, the deduction should result in a significantly greater than 28% proportion being available to those folks. From your (and others’) comments, it seems more an empirically derived metric of probability of default, which is perfectly reasonable.

[WaitingToExhale]

[quote=edna_mode]… So about $600/mo carrying cost per $100,000 house. Haven’t been too far off yet.[/quote]

I’m happy you posted this, since it pretty closely matches my calculations of what my post tax-break carrying cost would be. As a first time house buyer, I’m nervous about using the online calculators, and I always assume everything will always be somewhat more costly or less beneficial than they suggest.

Thanks for the feedback.

[WaitingToExhale]

[quote=edna_mode]… So about $600/mo carrying cost per $100,000 house. Haven’t been too far off yet.[/quote]

I’m happy you posted this, since it pretty closely matches my calculations of what my post tax-break carrying cost would be. As a first time house buyer, I’m nervous about using the online calculators, and I always assume everything will always be somewhat more costly or less beneficial than they suggest.

Thanks for the feedback.

[WaitingToExhale]

[quote=edna_mode]… So about $600/mo carrying cost per $100,000 house. Haven’t been too far off yet.[/quote]

I’m happy you posted this, since it pretty closely matches my calculations of what my post tax-break carrying cost would be. As a first time house buyer, I’m nervous about using the online calculators, and I always assume everything will always be somewhat more costly or less beneficial than they suggest.

Thanks for the feedback.

[WaitingToExhale]

[quote=edna_mode]… So about $600/mo carrying cost per $100,000 house. Haven’t been too far off yet.[/quote]

I’m happy you posted this, since it pretty closely matches my calculations of what my post tax-break carrying cost would be. As a first time house buyer, I’m nervous about using the online calculators, and I always assume everything will always be somewhat more costly or less beneficial than they suggest.

Thanks for the feedback.

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