house payment?

Question

is i better to keep the house payment for the tax break or just pay off the house?

Answer 1

It is almost always smart to eliminate your bills if you can. This is especially true for mortgage payments.

Let assume for this example you are in the 35% (the highest tax bracket). At that rate for every $100 you spend on mortgage interest you will see a decrease in your tax by $35. So if you have an interest only loan and you payment is $100 a month you will net a savings of $65 a month by ditching the payment.

But, most people do not have an interest only loan, so their monthly savings will be more.

There is also the standard deduction to contend with. Most people want to take the higher of the standard or itemized deduction to save the most in taxes. An example is if you are married and your itemized deduction is $12,000 (with charitable, mortgage interest, state income, and property tax deductions) $4,000 of which is mortgage interest. The standard deduction for married people is $10,300. Subtract the two numbers and it means after you lose the first $1,700 in mortgage you will no longer be penalized on a tax standpoint.

With the standard deduction you will be getting a $10,300 deduction for $8,000 in deductible expenses, compared with before the payoff you were getting a $12,000 deduction for $12,000 worth of expenses. I personally like to be in a situation where I am getting a deduction for less money.

My examples do not take into consideration of state tax issues, but I am confident even with that considered that paying off your mortgage on a tax and monthly payment standpoint makes sense.

The thing you will need to consider is the opportunity cost of paying off your mortgage. If you have a low fixed mortgage rate, then you may want to consider investing the payoff money in something greater return than your mortgage rate. There may be a penalty for paying off a mortgage early. You will need to check your mortgage contract to see.

Answer 2

You're usually $$$ ahead by paying off the loan. If you can invest the funds for a higher after-tax rate of return than the after-tax rate on your mortgage, keep the mortgage. Otherwise, pay it off if you can.

Answer 3

I personally would pay off the mortgage. if the interest portion of the mortgage payment is, say, $1,000, then in the hightest tax bracket you would save $350 in taxes. why pay $1,000 to save $350?? however, investment gurus would tell you to mortgage yourself to the hilt then invest the proceeds. if you want to live and die by the stock market then do the latter.

Answer 4

Suze Orman who is a financial whiz always says to pay off the mortgage, because then you are more secure.

www.suzeorman.com
good luck & bless

Answer 5

that depends on your tax situation. talk to your tax person.