Tips for the New Home Owner: Paying Down your Mortgage and Itemizing on your Taxes

 

Amortization Schedule and Tips to Pay Down your Mortgage

An amortization schedule charts out all your payments over 30 years. For example, here is an amortization schedule for a $200,000 loan at 3% interest (taxes and insurance not included).

To pay down the mortgage, here are a few things you can do:

1. The mortgage coupon you get from the lender may have an extra box to "Pay extra towards the principal", which you can do each month or anytime.
 
2. Many financial advisors recommend making an extra payment a year. This article discusses the difference between making extra payments (which is principal plus interest) vs. paying extra principal monthly. 

3. If you want to pay down a large amount of the mortgage, make sure it goes towards the principal. This is so that instead of making extra payments on $200K, you are paying down from $200K to $195K and making payments on $195K.  Paying from $195K puts you at a more advantageous place in the amortization schedule (where you are paying more in principal and less in interest), so it is better to pay from the lower amount. Once I had $10,000 I wanted to use to pay down my mortgage.  So I wrote them a letter, sent them a check for $10,000 and told them (a) Apply 5,000 towards the principal first (b) apply the last $5000 towards the next 5 payments. With a large amount you want to make sure you have it in writing and keep a copy in case they mess up.


Doing  your Taxes as a New Homeowner:  To Itemize or not Itemize?

Another question you will have to answer as a new homeowner is whether you will itemize your taxes.  If you itemize, you can deduct your things like your mortgage interest and property taxes.  If you don't itemize, you can take the standard deduction, and won't be able to deduct your mortgage interest. Talk to your tax preparer for the best way to proceed.

This page discusses itemizing as of 2020. 

Be sure to keep all receipts and costs associated with house, whether it is an investment or not.  If it is an investment or down the road if you turn it into a rental, you can deduct these from any profit when you sell.

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