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| *Loan,banking and credit>>>mortgage loan |
Is it better to pay off a home loan and save thousands in interest or take advantage of mortgage tax deduction |
primary residence 30 yr loan it depends upon your cash flow situation and your longer term plans. how long you plan to stay in the house, the interest rate on the loan, your tax rate and your savings/safe investment rate for the money you would otherwise be putting into the mortgage payment. do the math... DL It depends on how much interest you are paying on the mortgage. If the money used to pay off the mortgage is earning more interest than the interest rate of the morgage then it might not be beneficial. The mortgage tax deduction will have to be factored in to see if really makes sense. if you have a high income ; the interest is a tax deduction . paying it a little faster will help your budget when you are retired with possibly less income. other people who consider risktakers yank out the equity and invest into more real estate. see a CPA for best advise That depends on your filing status and what the standard deduction would be. Also consider that your preventing the governement from waisting $15 to $40 dollars on every hundred that you pay in interest. Having done mortgages for 18 years, I think the key analysis to your question should be based on what other debt you have. For example, let's presume you have a 6% interest rate on your mortgage. Presuming you do not get hit by the Alternative Minimum Tax, your net tax benefit probably brings your annual cost on the mortgage interest rate to about 4% or so. If any of your credit cards are at 4% or higher you would serve yourself better financially by paying off those first for a variety of reasons: a) Credit card interest for individuals is not tax deductible b) There is good debt and bad debt: mortgages are good debt and credit cards are bad debt (pretty simple) And if your rates on the credit cards are REALLY high, then maybe you should consider wrapping them into a new 2nd mortgage or HELOC so you can get the tax deduction and also lower your overall cost of borrowing. Now, if you have no credit card debt, that opens up a completely different analysis. You need to look at your annual ROI (return on investment) on the money in the bank that you would be using to prepay your mortgage. You may end up costing yourself money by prepaying your mortgage. One of the great myths of financial thinking in the last 40 years has been the idea that you are somehow profiting by writing off (deducting) mortgage interest. Only in the last few years has this myth approached reality when the APR for most mortgage loans dropped below 6%. Another answerer gave a better and more detailed answer concerning how to do the math here. But he did give what I consider the worst possible advice on one issue. He suggested rolling your credit card debt into a 2nd Mortgage. Never ever do this. In the event that disaster strikes and you can't pay the credit card company, well that's a tough spot to be in. But if you can't pay the bank back, they will take the collateral you put up -- your house! Obviously paying it off. The Mortgage tax deduction is a DEDUCTION, not a credit. You get back maybe 10-15 cents on the dollar, and that's only what you pay ABOVE your standard deduction (for me, being married, thats anything over $10,000) You'll never make MORE by taking the deduction. |
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