The time-value of an interest free $7500 loan to first-time home buyers
Scott P. Rogers
Over the past few weeks I have been explaining to many first time home buyers that if they buy a home before July 1, 2009 they can take advantage of a $7,500 tax credit.
Some, though, have been less than enthused because the full $7,500 tax credit has to be repaid over 15 years. Yes, that's right --- even though you will pay $7,500 less in taxes for the tax year in which you make your first home purchase, you do have to repay these tax savings in years three through seventeen.
I thought I'd take a look at the value of what is essentially an interest free $7,500 loan. For this analysis, I am examining the aggregate savings from not paying interest on the $7,500, using a current interest rate of 6%.
As you can see --- over the course of the 17 years, you save a total of $4,050. Thus --- even though you are paying back the $7,500 tax credit, it is still at a significant ($4,050) savings.
Some, though, have been less than enthused because the full $7,500 tax credit has to be repaid over 15 years. Yes, that's right --- even though you will pay $7,500 less in taxes for the tax year in which you make your first home purchase, you do have to repay these tax savings in years three through seventeen.
I thought I'd take a look at the value of what is essentially an interest free $7,500 loan. For this analysis, I am examining the aggregate savings from not paying interest on the $7,500, using a current interest rate of 6%.
As you can see --- over the course of the 17 years, you save a total of $4,050. Thus --- even though you are paying back the $7,500 tax credit, it is still at a significant ($4,050) savings.
