The Hidden Benefit of Higher Interest Rates in Nevada Real Estate

​YOUR COST OF BORROWING MAY BE LOWER THAN YOU THINK!

1. THE HIGHER THE INTEREST RATE, THE BIGGER THE TAX DEDUCTION.

Homeowners who itemize tax deductions can deduct the interest on up to $750,000 of mortgage balances used to buy, build or improve a qualified home. In the past few years, not as many home buyers benefited from this because their total annual interest expense was lower than their standard deduction. 

However, interest rates and total annual interest expenses have doubled this year according to Freddie Mac's weekly survey of mortgage rates. For example, a $500,000 mortgage at a 6.5% interest rate has an annual interest expense of $32,500. This far exceeds the standard deduction. This also means that the homeowner in this example is more likely to itemize and benefit from the mortgage interest deduction.

2. HOW BIG IS THE TAX BENEFIT?

Calculate for yourself!

• Step 1: Express your tax bracket as a decimal: 24% = 0.24
• Step 2: Subtract that number from the whole number one: 1 – 0.24 = 0.76
• Step 3: Multiply that number by your interest rate: 6.5% x 0.76 = 4.94%
• In this example, a 6.5% mortgage costs 4.94% after-tax for someone in a 24% tax bracket.