What is Mortgage Interest?

Mortgage interest is money you pay in interest to the lender that holds your mortgage. Every month, a mortgagee pays an equal sum that always includes principal and interest. The principal is the amount that is applied towards the original loan amount. The interest is amount the lender is charging you to borrow the money. In the first five to ten years of a mortgage, the mortgage interest accounts for well over half of the scheduled monthly payment. As the mortgage ammortizes, the amount applied to the principal grows and the amount being applied to the mortgage interest decreases. This is because, when the principal balance is lowered, the amount of mortgage interest also lowers. A document called a truth in lending disclosure is provided to every mortgagee. This document outlines the mortgage interest rate, ammortization schedule, total mortgage interest, and total of all payments at the end of the mortgage term. The figures can be staggering when viewed for the first time. There ...  more

It’s any interest you pay on a loan secured by your main home or your second home, including a purchase mortgage, a second mortgage, or a home equity loan or line of credit. The key is, the loan must be secured by the home in order to be eligible for a mortgage interest deduction. There may be certain limits placed on these deductions; for more information, see IRS Publication 936, Home Mortgage Interest Deduction, and consult your tax advisor for details. You may be able to get a tax benefit out of any money you’ve spent fixing up your home. While you generally can not deduct the costs of home repairs within the same year you paid for them, make sure you track all such expenses over the years. When the time comes to sell your home, if you make a profit, you may be able to deduct the total spent from any capital gain, thus lowering the capital gains taxes you may owe. Consult your tax advisor for possible limitations on this deduction. In addition to deducting mortgage interest, ...  more