2006-12-01 03:56:00 · 4 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
That depends on too many factors. What is your income? Marginal tax bracket? Interest rate?
Let's assume that you have a 6% mortgage rate. Let's also assume you are paying approximately 20% of your income in state and federal taxes.
That gives you an effective mortgage interest rate of 4.8%.
IF you can find a completely safe investment that will pay you MORE than 6% (since you have to pay taxes on that income), it's possible your money can grow faster than the interest savings you would get.
Ultimately, as you said, paying down your mortgage is effectively a guaranteed rate of return equal to your actual interest rate, less some tax savings.
Look at it this way. Would you pay a dollar to save a quarter? If all you are looking at is your deduction, that's all you're doing. Paying a dollar to save a quarter. Which leaves you losing 75 cents. Unless you've put that dollar into something that will earn you more money.
2006-12-01 05:59:17 · answer #1 · answered by Anonymous · 0⤊ 0⤋
The money you save by paying off early will FAR EXCEED the tax savings of the lost deduction!
To see the true value of your mortgage interest deduction, subtract the standard deduction (depends upon your filing status) from your total mortgage interest. Then apply your marginal tax rate to the difference. For most folks, it's only a few hundred $$$ a year unless you have a huge mortgage. When you compare that amount to the total mortgage interest amount it should be pretty easy to see which is the best way to go!
It doesn't matter what your interest rate is, you will always come out better without the interest charges than without the interest deduction.
2006-12-01 12:10:05 · answer #2 · answered by Bostonian In MO 7 · 1⤊ 0⤋
Depends on your interest rate. With rates having been so low, you should have a pretty good rate. If thats the case it may be better to invest the money. Even a safe account may equal the interest your paying. Paying off a mortgage does gives you peace of mind though.
2006-12-01 11:59:23 · answer #3 · answered by Anonymous · 0⤊ 1⤋
That depends on what you plan to do with the house.
If you plan to stay in the house for an unspecified amount of time or permanently I would pay it down or off.
If you plan to sell it sooner rather than later, I would invest the money into a certificate of deposit.
or
Buy major house improvments such as energy efficient windows, solar panels and Hot-Water On-Demand, anything that
will improve the liveability of the home.
2006-12-01 12:12:36 · answer #4 · answered by wi_saint 6 · 0⤊ 0⤋