Every homeowner must know about these three benefits of having a mortgage.
Are you underestimating the power of a mortgage? Today, I want to share three key factors you need to know about a mortgage.
The mortgage interest deduction. With a mortgage, a portion of your monthly payment goes toward interest. For instance, if you're purchasing a $775,000 house with a $600,000 mortgage at a 7% interest rate and 20% down payment, you may pay around $30,000 to $35,000 in interest annually. This interest cost reduces your taxable income. So, if your income is $200,000, your taxable income could drop to $170,000 or even $165,000, depending on your tax rate. In California, with a 30% tax rate, you could save $10,000 through the mortgage interest deduction.
"Knowing how to take advantage of your mortgage will have a significant impact on your financial health."
Forced savings account. While you pay interest, you're also gradually reducing the principal balance, building equity. Over time, this is a significant contributor to your net worth. For example, you might be paying $5,000 to $6,000 in principal payments annually, lowering your loan amount and increasing your equity. To accelerate these savings, some people make extra payments, like 13 payments in 12 months or bi-monthly payments, depending on their financial situation.
The leverage component. It allows you to control an asset with a small percentage of equity relative to the purchase price. This unique feature lets you benefit from long-term appreciation. Unlike other investments, such as stocks, where you can't buy 20% of a company like Apple and enjoy its profits for 20 years, real estate offers this leverage opportunity.
Knowing how to take advantage of your mortgage will have a significant impact on your financial health. If you have specific questions about your mortgage or homeownership journey, feel free to call or email me.