I plugged the number in the excel sheet I created that calculate these # w/ the input I put in. I use my own tax bracket of 28% fed and 9% state. That’s 37% tax. That’s where I got the #. The tax deduction would be around 900-1000/month. I don’t get what you mean by the additional 400k will not fall into the highest tax bracket, can you explain? Lets assume my number is a little off and you’re only getting 600/month in tax deduction, that would still bring you to 1700/month after tax deduction. That’s close enough for me to take comfort in having the $ liquid still just in case. Also, there’s now talk about fed raising rates again. If that happen, my 5.3% saving would go up as well. Also, as bob2007 mentioned, jumbo 30 year fixed rate right now w/ great credit is in the low 6% and that’s what I was quoted as well. If you want a little higher rates in savings, you can go w/ a CD that pay around 5.5% instead. That narrow the difference to less than 1%. So if mortgage rate is 6.5% w/ 37% tax write off, the effective rate would be 4.1%. With a CD @ 5.5% and long term cap gain of 15%, the effective rate would be 4.6%. So your advantage would be .5% a year and your $ liquid. That’s how I see it. If I messed up my numbers, please correct me.
Regarding to a house paid free and clear, I don’t really see the point in that. Why not prolong the tax write off indefinitely if your equity can make better return for you, especially if you can do it in a savings account. You always have the comfort in knowing that you can pay off your house at any moment in time. But you’re making your money work harder for you w/out any risk. You’re also taking advantage of compound interest as well.
