📈 The Surprising Hidden Benefit of Higher Interest Rates
Your Cost of Borrowing May Be Lower Than You Think
While most people think high interest rates are all bad news, there’s a silver lining that savvy homeowners and buyers should understand—a potentially powerful tax break.
🏡 Bigger Interest Payments = Bigger Tax Deductions
If you itemize your taxes, you may be able to deduct the interest on your mortgage—up to $750,000 of qualified home debt. When interest rates were low, many homeowners didn’t benefit because their annual interest payments were small. That often meant their total deductions didn’t exceed the standard deduction.
But today? That’s changing fast.
A $500,000 mortgage at a 7% interest rate means paying about $35,000 per year in interest—far more than the standard deduction. This means more people can itemize their taxes and potentially save thousands.
💡 So What’s the Real Cost of a 7% Mortgage?
Let’s break it down using a 24% tax bracket:
- Convert 24% to a decimal → 0.24
- Subtract from 1 → 1 – 0.24 = 0.76
- Multiply by your interest rate → 7% x 0.76 = 5.32%
➡️ In this example, your after-tax mortgage rate is closer to 5.32%—not 7%!
That’s why your true borrowing cost may be lower than it seems.
📢 Final Thought: Don’t Miss Out on This Hidden Benefit
This insight isn’t financial advice, and it won’t apply to everyone. You’ll only benefit if you itemize your deductions, which typically means:
- Over $30,000 in deductions (for married couples filing jointly)
- Or over $15,000 (for single filers)
Still, this is a valuable strategy to explore, especially if you’re buying or refinancing right now.
👉 Always consult your CPA or tax advisor for personal advice, and check out IRS Publication 936 for more details.