"If your mortgage interest rate is 6%, and you are in the 25% tax bracket, you are only paying 4.5% after taxes."

Well, this is simply not true for many people. The fact is that some people get no tax benefit at all for paying mortgage interest. And even those that do may only get a partial tax benefit. This is because every taxpayer can choose between itemizing their deductions or claiming the standard deduction, and you can claim the standard deduction regardless of whether you qualify for any itemized tax deductions. According to the IRS, most taxpayers take the standard deduction (I think around 65% of all tax filers). So, most people do not get the benefit of the mortgage interest tax deduction, and even those that do only benefit to the extent that the total of itemized deductions exceeds the standard deduction.

For example, the standard deduction in 2009 for married couples filing a joint return is $11,400. So, if a couple adds up all of their itemized deductions (including mortgage interest) and the total is less than $11,400, then they get

*no tax benefit whatsoever*from paying mortgage interest. And even if the total is more than $11,400, they only benefit to the extent that the total of their itemized deductions exceeds the standard deduction.

Let's assume the couple has a $150,000 mortgage at 6%, so they pay $9,000 in interest, and their property tax bill is $2,000, and they gave $400 to charity, and they have no other itemized deductions. In their case, the total of their itemized deductions equals the standard deduction, so they get

*no tax benefit at all*for paying all of that mortgage interest. So their before tax 6% mortgage interest rate is also 6% after taxes.

Let's now assume the couple has a $200,000 mortgage at 6% and they are in the 25% marginal tax bracket. Then they will pay $12,000 in mortgage interest, and their total itemized deductions would be $14,400, and they would get a tax benefit equal to $750. ($3,000 x .25) In that case, the relatively small additional tax deduction lowers their effective mortgage interest rate from 6% to 5.62%,

*not*4.5%. ($11,250 / $200,000).

If the couple is over 65, then the standard deduction is even higher...$12,500, so the tax benefit of the mortgage interest is reduced even further.

Of course it is possible for someone to have sufficient other itemized deductions (other than the mortgage interest deduction) that add up to more than the standard deduction, so that all of the mortgage interest then becomes tax deductible. But this applies to a minority of taxpayers, and I suspect it is a relatively small minority at that. But that doesn't stop the media and most people from simply repeating the mantra that "mortgage interest is tax deductible" so often, that most people simply don't understand that it probably doesn't apply to them, and they are surprised to learn otherwise.