A financial advisor told me that over a 30 year mortgage of $200,000 at 6.25%, my tax deductions on the 30 years of interest will be better than paying the mortgage off early in 15 years. Any truth to this?
2007-09-21 06:57:19 · 6 answers · asked by BP 2 in Business & Finance ➔ Personal Finance
I believe this is wrong advise.
Keep in mind, when you take your interest deduction, you are only reducing your taxes by your tax bracket.
For example - if you paid $10,000 in interest and you are in a 25% tax braket - you are reducing your taxes by $2,500.
So if we flip this around and say you no longer have a mortgage payment - yes you will pay an additional $2,500 in taxes, but you will also have an extra $7,500 in your pocket.
One of the best ways to pay your mortgage off early - with out any impact to your monthly finances is by utilizing a Money Merge Account (MMA).
The below link discusses in detail this solution to an early pay off of your mortgage!
2007-09-23 07:43:08 · answer #1 · answered by Rick 3 · 0⤊ 0⤋
There is some truth...it depends on what you do with the difference between the 15 year mortgage payment and the 30 year mortgage payment.
Assume a 6.25% insterest rate and a marginal tax rate of 28%. The actual interest cost of a mortgage is 4.50%. You could pay off the mortgage faster (say 15 years) and reduce the total interest (and deduction) that results.
If you paid off the mortgage in 30 years and invested the difference between the 15 yr mortgage monthly payments and the 30 yr monthly payments the you might come out ahead. If you can earn 6.25% on the invested money, your after tax return would be 4.50%...the same as your after tax cost of the mortgage interest. If however, you could earn 9.00%, your after tax return would be 6.48% and you would be ahead investing, rather than paying off the mortgage faster, because your aftyer tax return of 6.48% is higher than you after tax cost of 4.50%.
Tax savings from deductions are ALWAYS LESS than the cost. If you can deduct $1000 in mortgage interest, the tax saving is dependednt on your marginal tax rate which will be 35% or less. So you spend $1000 and save no more than $350.
2007-09-21 07:45:35 · answer #2 · answered by skipper 7 · 1⤊ 0⤋
Wrong.
Financial Advisors give notoriously bad tax advice. The problem is that he isn't exactly neutral in the equation. He has a vested interest (ie. commission) riding on your decision.
You never want to pay interest just to get a tax deduction. For example: Assume a combined rate (Federal and State) of 30%. Paying $10,000 in mortgage interest saves you $3000 in taxes. You are still in the hole by $7000.
Do whatever makes you the most comfortable. Personally, I pay extra principal each month and I invest each month. As of now. I am on track to pay off my 30 year mortgage in 12 years.
2007-09-21 07:10:17 · answer #3 · answered by Wayne Z 7 · 1⤊ 1⤋
(do not embarrass your self through relating Fox information.) dwelling house possession has normally been the superb way for undesirable and middle earnings human beings to get wealthier. So, permitting human beings to deduct their interest helps the growth of wealth. agency interest, i.e. interest paid on purchases of condominium homes or new equipment, is tax deductible. dwelling house loan deductible provides people who purchase their dwelling house for residency a extra point enjoying container, otherwise it would surely be extra low-value for an investor to purchase a house than for a guy or woman or kin to purchase a house for dwelling in.
2016-10-19 07:54:18 · answer #4 · answered by Anonymous · 0⤊ 0⤋
This is absolutely wrong. You will be paying 6.25% interest to save approximately 3%. Plus if your house is payed off there is no personal risk.
2007-09-21 08:20:10 · answer #5 · answered by justin c 2 · 2⤊ 0⤋
it matters on your income,but generally Yes the deduction is better.
2007-09-21 07:34:14 · answer #6 · answered by Anonymous · 1⤊ 0⤋