This blog is a way for me to share hard learned lessons about money with those who are just starting out on their own. I hope it's a way for you to avoid making the mistakes I made, and to benefit from my experiences

Monday, December 18, 2006

Do You Have a Silent 2nd or 3rd Mortgage?

When I bought my home, my mortgage broker found some state assistance for the first time homebuyers. It was a silent 2nd mortgage at 5%. What this means is that $25,000 of my mortgage loan requires no payments until at the end of the 30 year period. At that point, I would owe something like $62,000 and could re-finance it if I had to, as my 1st mortgage would be paid off by then.

Anyway, the interest has been adding up since then. I've made a few occassional small payments, and the interest paid has been tax deductible. Right now, it's about $1,300 in interest. I'm taking money out of savings and sending in a payment on it for that $1,300 in interest. It's going to save me a bundle.

First, I'll be saving 5% in future interest on that $1,300. That's what I was earning in the savings account. Plus, I can deduct that interest payment on this year's taxes. I'm expecting to be in the 20% bracket, so it'll save $260 on income taxes this year.

Get Your Mortgage Payment in Early to Maximize Your Tax Deduction

This year I'm sending my mortgage payment in 2 weeks early. Why? So I get 13 months of interest paid this year, so I can deduct it on my taxes.

If you've had a good income year, and expect to owe a larger amount in taxes, here's a free way to save taxes on that interest. If you haven't had such a good year and don't expect to owe much in taxes, make the payment in early January. Maybe you'll have a better year next year and can take that extra help on next year's taxes.