1a. The market value of your house is $175,000 and you have a first mortgage balance...

1a. The market value of your house is $175,000 and you have a first mortgage balance of $100,000. If a lender requires a 80% loan-to-market value ratio, how large could your home equity loan be?

1b. Isabelle (a single taxpayer) contributes $6,000 annually to her church. In addition, she owns a home in which she has $20,000 equity, and she itemizes deductions. If she pays $1,000 interest on credit cards, $6,000 interest on her home equity loan, and is in the 26% marginal tax bracket, calculate Isabelle's tax savings from these interest payments.

Solutions

Expert Solution

Solution 1.

The total loan possible on the house = 80% * $175000 = $140000

home equity loan = $140000-first mortgage

= $140000-$100000

= $40000.

Solution 2.

Total tax savings= Deductible expenses (i.e those exempt under law)*Tax rate

=(6000+20000+1000+6000)*26%

=$8580.

jeff jeffy answered 2 years ago

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