# How Do I Calculate a Mortgage Rate After Income Taxes?

The Internal Revenue Code allows you to deduct the interest on your mortgage from your income taxes. However, depending on your financial circumstances, it might not be in your best interests to take the deduction, in which case your after-tax mortgage rate will be the same as the stated mortgage rate.

## Simple Formula

To figure your mortgage rate after income taxes, subtract your marginal tax rate from 1 and multiply the result by your mortgage interest rate. Say for example, you fall in the 25 percent tax bracket and your mortgage interest rate is 5.5 percent. First, subtract 0.25 from 1 to get 0.75. Then, multiply 0.75 by your mortgage interest rate of 5.5 percent to find the after-tax mortgage interest rate is 4.125 percent.

## Marginal Tax Rate

As the formula shows, the higher your marginal tax rate, the more your mortgage interest deduction helps you. Your marginal tax rate refers to the rate you pay on your last dollar of income. The brackets vary depending on your filing status and change from year to year. For example, say the tax brackets for the year are 15 percent on income up to \$35,000, 25 percent on income between \$35,000 and \$70,000, and 35 percent on income over \$75,000. If your income for the year, before accounting for the mortgage interest deduction, is \$90,000, your marginal tax rate is 35 percent.