hidden costs in home ownership

In order to make payments on your home loan there is a well kept secret – in plain sight. Yet few non-economists ever look at the extent of the insidious unconsidered costs. Wages needed to meet home loan payments are loaded with income tax and FICA.

Interest payments on your home are tax deductible although FICA is not.

However few workers consider the hidden cost of home ownership.

How many Home Buyers are aware that the cost of a mortgage is 15.3% higher than the base home loan payment quoted by lenders?

While the marginal tax on your wage earnings (assume for purposes of an example a rate of 24%) disappears with the deductibility of the interest expense of your home loan.

What does not disappear is the FICA levy on your wage which is split between wage earners and employer. Each paying 7.65% -when the Medicare levy of 1.45%, is added to the Social Security tax rate of 6.2%. The combined impost for a worker and your employer is thus 15.3% .

In respect of a home loan payment of $30,000 the amount lost to FICA in dollars is $4,590. The cost of your mortgage is therefore $34,590 – 15.3% higher than you were told by your Bank, Accountant and Financial Adviser.

Note: The FICA paid by your employer should be added to your wage costs as grossing up all costs is appropriate for determining the cost of your employment to your employer.