Advice: Calculate Mortgage Tax Savings

The decision about when to buy a home is based on factors including interest rates, home prices and your financial situation. One important part of the financial calculation that is frequently forgotten, however, is the tax benefit of paying mortgage interest.

Mortgage interest payments (along with any points paid at closing) are tax deductible if you itemize your deductions on Schedule A of Form 1040.

The IRS defines mortgage interest in Publication 936 as "any interest you pay on a loan secured by your home (main home or second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit or a home equity loan."

In order to deduct the interest legitimately, you need to be legally responsible for the loan -- meaning, you can't deduct interest you're paying on someone else's loan. Your loan also has to be considered secured debt, meaning that your home serves as collateral for the loan (as is the case for most mortgages and home equity loans).

If you know your federal tax bracket, then the calculation of how much you'd save on taxes can be relatively easy: multiply the amount of mortgage interest you paid this year by your tax rate and that gives you your savings. But that figure doesn't give you the complete picture.

That's because, in addition to a number of other itemized deductions available on your federal return, you can deduct your state income taxes. The Mortgage Tax Savings calculator from BankingMyWay.com makes these calculations simple.