How to Calculate After-Tax Interest Rate
First-time homebuyer may find it a pleasant surprise that mortgage interest is tax-deductible. And the actual cost of interest on a home loan may be less than they expected.
If a borrower itemizes deductions, and therefore deducts mortgage interest, the amount of income taxed is reduced. And if a borrower subtracts these income tax savings from the amount of mortgage interest paid, the difference represents the actual cost of interest - and a noticeably lower after-tax interest rate. Provided below are tables to help you and your prospective homebuyer estimate the after-tax interest rate on a home mortgage.
Instructions for calculating after-tax interest rate:
Find your homebuyer’s approximate gross income (total annual income) on the top line and the interest rate the homebuyer will pay on a home loan, located in the first column of each table. Go down the income column and across the interest rate row to the point of intersection. The number at this point is your homebuyer’s approximate after-tax interest rate. ****ASSUMES MARRIED FILING JOINTLY****
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Gross Income (in thousands) |
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$25 |
$30 |
$40 |
$50 |
$60 |
$70 |
$80 |
$90 |
$100 |
$125 |
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Loan
Interest
Rate |
After-tax Interest Rate (in %s) |
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4.00% |
3.79 |
3.7 |
3.6 |
3.53 |
3.32 |
3.07 |
2.95 |
2.92 |
2.89 |
2.83 |
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4.25% |
4.02 |
3.93 |
3.82 |
3.75 |
3.53 |
3.26 |
3.14 |
3.1 |
3.07 |
3 |
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4.50% |
4.26 |
4.17 |
4.05 |
3.98 |
3.74 |
3.45 |
3.32 |
3.28 |
3.25 |
3.18 |
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4.75% |
4.5 |
4.4 |
4.27 |
4.2 |
3.95 |
3.64 |
3.51 |
3.47 |
3.44 |
3.36 |
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5.00% |
4.74 |
4.63 |
4.5 |
4.42 |
4.15 |
3.84 |
3.69 |
3.65 |
3.62 |
3.54 |
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5.25% |
4.97 |
4.86 |
4.72 |
4.64 |
4.36 |
4.03 |
3.87 |
3.83 |
3.8 |
3.71 |
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5.50% |
5.21 |
5.09 |
4.95 |
4.86 |
4.57 |
4.22 |
4.06 |
4.01 |
3.98 |
3.89 |
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5.75% |
5.45 |
5.32 |
5.17 |
5.08 |
4.78 |
4.41 |
4.24 |
4.2 |
4.16 |
4.07 |
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6.00% |
5.68 |
5.56 |
5.4 |
5.3 |
4.98 |
4.6 |
4.43 |
4.38 |
4.34 |
4.24 |
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6.25% |
5.92 |
5.79 |
5.62 |
5.52 |
5.19 |
4.8 |
4.61 |
4.56 |
4.52 |
4.42 |
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6.50% |
6.16 |
6.02 |
5.85 |
5.74 |
5.4 |
4.99 |
4.8 |
4.74 |
4.7 |
4.6 |
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6.75% |
6.39 |
6.25 |
6.07 |
5.96 |
5.61 |
5.18 |
4.98 |
4.93 |
4.88 |
4.77 |
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7.00% |
6.63 |
6.48 |
6.3 |
6.18 |
5.81 |
5.37 |
5.17 |
5.11 |
5.06 |
4.95 |
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7.25% |
6.87 |
6.71 |
6.52 |
6.41 |
6.02 |
5.56 |
5.35 |
5.29 |
5.24 |
5.13 |
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7.50% |
7.1 |
6.94 |
6.75 |
6.63 |
6.23 |
5.75 |
5.54 |
5.47 |
5.42 |
5.3 |
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7.75% |
7.34 |
7.18 |
6.97 |
6.85 |
6.44 |
5.95 |
5.72 |
5.66 |
5.61 |
5.48 |
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8.00% |
7.58 |
7.41 |
7.2 |
7.07 |
6.65 |
6.14 |
5.9 |
5.84 |
5.79 |
5.66 |
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8.25% |
7.81 |
7.64 |
7.42 |
7.29 |
6.85 |
6.33 |
6.09 |
6.02 |
5.97 |
5.83 |
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8.50% |
8.05 |
7.87 |
7.64 |
7.51 |
7.06 |
6.52 |
6.27 |
6.2 |
6.15 |
6.01 |
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8.75% |
8.29 |
8.1 |
7.87 |
7.73 |
7.27 |
6.71 |
6.46 |
6.39 |
6.33 |
6.19 |
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9.00% |
8.52 |
8.33 |
8.09 |
7.95 |
7.48 |
6.91 |
6.64 |
6.57 |
6.51 |
6.36 |
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9.25% |
8.76 |
8.56 |
8.32 |
8.17 |
7.68 |
7.1 |
6.83 |
6.75 |
6.69 |
6.54 |
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9.50% |
9 |
8.8 |
8.54 |
8.39 |
7.89 |
7.29 |
7.01 |
6.93 |
6.87 |
6.72 |
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9.75% |
9.23 |
9.03 |
8.77 |
8.61 |
8.1 |
7.48 |
7.2 |
7.12 |
7.05 |
6.89 |
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10.00% |
9.47 |
9.26 |
8.99 |
8.83 |
8.31 |
7.67 |
7.38 |
7.3 |
7.23 |
7.07 |
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10.25% |
9.71 |
9.49 |
9.22 |
9.06 |
8.51 |
7.86 |
7.57 |
7.48 |
7.41 |
7.25 |
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10.50% |
9.94 |
9.72 |
9.44 |
9.28 |
8.72 |
8.06 |
7.75 |
7.66 |
7.59 |
7.42 |
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10.75% |
10.18 |
9.95 |
9.67 |
9.5 |
8.93 |
8.25 |
7.93 |
7.85 |
7.78 |
7.6 |
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11.00% |
10.42 |
10.18 |
9.89 |
9.72 |
9.14 |
8.44 |
8.12 |
8.03 |
7.96 |
7.78 |
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11.25% |
10.65 |
10.42 |
10.12 |
9.94 |
9.34 |
8.63 |
8.3 |
8.21 |
8.14 |
7.95 |
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11.50% |
10.89 |
10.65 |
10.34 |
10.16 |
9.55 |
8.82 |
8.49 |
8.39 |
8.32 |
8.13 |
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11.75% |
11.13 |
10.88 |
10.57 |
10.38 |
9.76 |
9.02 |
8.67 |
8.58 |
8.5 |
8.31 |
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12.00% |
11.36 |
11.11 |
10.79 |
10.6 |
9.97 |
9.21 |
8.86 |
8.76 |
8.68 |
8.48 |
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