Zippyjuan
Banned
- Joined
- Feb 5, 2008
- Messages
- 49,008
The mortgage tax deduction is giving you back a portion of the interest you paid on your mortgage that year. If you are in a 20% tax bracket, you get back 20% of what you paid in interest. If your mortgage is paid off, you get back 100% of the interest you would have been paying (since you aren't paying any interest anymore). That is actually saving you more money than the deduction was. For every $1,000 in interest you were paying a year, you get $200 off your taxes. Without a mortgage, you get to keep all $1000. Which sounds like the better deal- $1,000 or $200?
You were paying taxes and insurance before when you had the mortgage. The difference is that your disposable income is increased by the amount of the payment you had been making on the mortgage. My disposable income increased about 25% when I made my final mortgage payment. If your housing payment was $1,000 a month, you will now have an extra $12,000 a year you can invest or do something else with. $2,000 a month? Now you are near $25,000 extra a year. A resounding no that it does not benefit you?
The longer you keep the loan, the more of your money you are giving to somebody else.
Should you pay EXTRA on your mortgage to get it paid off early? That depends. First of course is "do you have the extra money"? Not everybody does. Secondly, can you reliably get a rate of return by investing the money into something else (after all fees and taxes on capital gains)? If you WILL invest the money then it may make sense to put the money into that investment. If Capital Gains taxes are 25% and your mortgage rate is five percent, you need an investment with a solid return of at least seven percent to cover the taxes.
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