My husband and I are buying a townhouse?

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It’s time for my husband and I to buy a townhouse. We’ve lived in an apartment for years and are ready to take the step and purchase something of our own. We chose a townhouse because of it being low maintenance and just enough room for us. There’s a new town-home community being built near our house and we’ve met with them a few times. One question still is left unanswered.

The manager keeps telling us “as long as you do your taxes right, you’ll be paying $ 835/month instead of $ 1100/month.” I’ve researched it online and can’t seem to wrap my head around it. Do we pay $ 1093/month then claim the interest on our taxes that we spent? If so, then we can claim $ 3096?? (I understand that I could claim the standardize deduction). How is that so? The government is not going to give me the money back … Why not just keep it on the loan, then our mortgage will be $ 4000 closer to $ 0. And do we claim the interest every year? Or is this a one time thing?

Someone just explain it in simple easy terms. Our mortgage loan will be about $ 160,000.

6 Comments
  1. Reply
    Pagan Dan
    February 17, 2011 at 2:24 am

    This is really an income tax question, as opposed to a real estate one. Nobody can begin to answer your question without knowing what country you live in. Mortgage interest is not tax-deductible in Canada, but it is in the USA. I don’t know any details about American income tax.

  2. Reply
    Jonny
    February 17, 2011 at 2:54 am

    This just sounds like a really stupid sales tactic. If your payment is $ 1100 per month with taxes and insurance, that will not change. They are just telling you that if you subtract the interest writeoff from your payments it equates to 835 per month.

  3. Reply
    Because I Said So
    February 17, 2011 at 2:57 am

    don’t listen to this manager, listen to your tax attorney or CPA. you can claim your mortgage interest on your taxes each year and a PORTION of it is refunded, but I don’t know how much. it’s not 100%. when you get your refund yes you could extrapolate that or divide across the past months of your mortgage to see what your net payment actually was, but in your head you have to be prepared to pay X amount month in and month out for 30 years. yes it’s nice to get a refund from the IRS, and that may help you make a principal only payment on your mortgage which in the long run keeps your total interest down for the life of the loan if you do that once a year, but thinking it’s going to decrease your monthly payment by $ 200 is bunk.

    the bottom line is you can’t spend more than 35% of your NET pay on the payment that includes taxes, mortgage and insurance.

  4. Reply
    joemoser1948
    February 17, 2011 at 3:50 am

    When claiming the “standard deduction” you do NOT get to clam the interest on your mortgage payments. The “manager” was trying to point out that by itemizing, you get to claim that mortgage interest, but I am not sure that really TRANSLATES into getting back that much that it is “like” paying only $ 835. The amount you get back on your taxes depends on how much you pay in, Best bet is to get on one of the fre Tax websites (e.g., TaxAct.com) and running the calculations AS IF you itemized – including the mortgage interest. But unless they took out about $ 8000 or more in Federal tax, it’s hard for me to imagine that you would get back enough to apply $ 265/month to your mortgage payments.

    One good rule of thumb is that you can afford a primary residence priced at 2.5 time your annual salary, assuming you put down the normal 20% and get a reasonable loan rate. So, assuming that the condo is priced at 200,000, I presume you and your husband earn about $ 90,000. combined income, before taxes.

  5. Reply
    falsi fiable
    February 17, 2011 at 4:12 am

    You might benefit from reading “Home Buying for Dummies” to learn more about the subject. It gets very complicated.

    The manager is giving you a hypothetical situation, but everyone may not fit his explanation. Under IRS rules, you MAY deduct monthly mortgage interest, property taxes, and point paid (for the current tax year). However, because of your low loan amount, you and your husband may not have enough deductions to make a difference and MAY be better off claiming the standard deduction.

    In my situation, my mortgage interest and property taxes greatly exceed the standard deduction for a single taxpayer. I get to write off about one third of my payment due to itemizing. My monthly mortgage is $ 1900 with taxes, but with tax write-off that is equivalent to about $ 1200 (which is not much more than a one bedroom apartment in my area).

  6. Reply
    Bibs
    February 17, 2011 at 5:02 am

    You will be paying the full amount of the mortgage payment. At the end of the year you will be able to itemize rather than taking the standard deduction which will to be to your advantage, because now you will be able to deduct your property taxes and your interest. In the beginning years of a mortgage almost all of the payment goes to interest and taxes

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