I am trying to figure out how ESPlanner accounts for the mortgage interest rate deduction. On the Primary Home input panel you enter remaining balance, payment and years left on loan, but there is no interest rate input. I thought you would need to enter this to determine the deduction. Hence my question - how is the mortgage deduction calculated?
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metalmike at kingwoodcabl wrote:I am trying to figure out how ESPlanner accounts for the mortgage interest rate deduction. On the Primary Home input panel you enter remaining balance, payment and years left on loan, but there is no interest rate input. I thought you would need to enter this to determine the deduction. Hence my question - how is the mortgage deduction calculated?
You do need the interest rate, but with the balance, number of payments, and amount of payment you can figure it out.
An easy, if not accurate, way to think about about it is:
interest = (payment * number of payments) - balance
the accounting for that is more difficult. ESPlanner calculates your mortgage rate given the payment data and then does the standard compound interest thing to figure out how much of this years payment is interest. After that the interest gets applied to the federal/state itemized deductions and off we go.
Best,
Dick Munroe
Thanks for the explanation. Makes sense now. I guess this way you don't have to input the interest rate and just work with your $ amounts and life of loan. :)