17-Sep-2003 - Mortgage interest deductibility saves homeowners
January 18, 2005
Sep 17, 2003
Mortgage interest deductibility saves homeowners two years of payments and $19,000
Toronto— Mortgage interest deductibility as proposed by the provincial PC party could save homeowners almost two years worth of payments and almost $19,000 over the life of their mortgage, Joe Valela, president of the Greater Toronto Home Builders’ Association, revealed today.
Valela released an independent analysis, prepared for the GTHBA by Will Dunning Inc., showing the impact of mortgage interest deductibility on homes priced between $100,000 and $250,000, based on 10 per cent and 25 per cent downpayment scenarios. The analysis calculated the total tax savings as well as the impact of reinvesting the tax savings back into the mortgage.
Depending upon the house price and downpayment, tax savings range from $4,729 up to $9,266, the number of monthly payments eliminated ranges from 14 up to 23 months and the dollar amount of payments eliminated ranges from $10,131 up to $18,870 or from 4.7 per cent up to 7.7 per cent of total mortgage costs.
On a $150,000 home typically found in most Ontario communities outside the GTA, a homeowner making a 25 per cent downpayment and reinvesting his tax savings of $6,670 would reduce his total mortgage costs by $14,536, the equivalent of 22 mortgage payments or 7.3 per cent of the total mortgage cost.
On a typical $250,000 home in the Greater Toronto Area, a homeowner making a 25 per cent downpayment and reinvesting his tax savings of $8,737 would reduce his total mortgage costs by $17,619, the equivalent of 16 mortgage payments or 5.3 percent of the total mortgage cost.
“We had this analysis done to corroborate statements that mortgage interest deductibility could knock two years off the average mortgage because we found it hard to believe that such a modest tax cut could have such a dramatic impact,” Valela stated.
“Imagine what these tax savings can do in the hands of homeowners,” Valela said. If a homeowner chooses not to reinvest the savings, he won’t pay off his mortgage as quickly, but the tax savings will be immediately reinvested in the economy as those homeowners spend their tax deduction on household goods, clothing or entertainment.
“If the homeowner does reinvest the tax savings, he will more than double his return on investment over the life of the mortgage. At the end of the mortgage term, these homeowners much larger savings will ultimately make their way into the economy in the form of big-ticket purchases on things like furniture, appliances, renovations or dream vacations,” Valela concluded.
Please click here to view PDF attachment (data tables).