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August 4, 2011 at 4:12 AM #716039August 4, 2011 at 4:14 AM #714836
CA renter
Participant[quote=SK in CV][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.
Am I missing something?
[/quote]
No, you’re not. You’ve identified something that should be obvious, yet I don’t know how many times I’ve had new clients come to see me, with huge mortgages, and they tell me that their prior CPA told them to buy the most expensive house they could and borrow as much as possible to save taxes. Friggen morons.
It’s simple. If the question is to put another $100K down, or borrow another $100K, if the taxable return on investing the $ is the same as the interest rate on the loan, taxes will be almost exactly the same. (there are some exceptions to this, but those exceptions would certainly not apply in a case where the purchase is a $1M home.) Nobody EVER needs a tax deduction in the form of home mortgage interest. Mortgage interest costs REAL money. It NEVER pays to buy a dollar for dollar deduction. If it did, no one would ever complain about my fees, since they’d be essentially free after taxes.
If someone is fortunate enough to have the flexibility like the OP does, it’s a pure investment decision. Taxes are a variable like they are for all investments. They are usually not the driver. Net return is.[/quote]
Thanks, SK. It’s just odd how you constantly hear the “tax savings” being touted as the reason one should get a mortgage. It’s surprisingly common to hear people push this, as if it’s always a good idea.
August 4, 2011 at 4:14 AM #714928Participant[quote=SK in CV][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.
Am I missing something?
[/quote]
No, you’re not. You’ve identified something that should be obvious, yet I don’t know how many times I’ve had new clients come to see me, with huge mortgages, and they tell me that their prior CPA told them to buy the most expensive house they could and borrow as much as possible to save taxes. Friggen morons.
It’s simple. If the question is to put another $100K down, or borrow another $100K, if the taxable return on investing the $ is the same as the interest rate on the loan, taxes will be almost exactly the same. (there are some exceptions to this, but those exceptions would certainly not apply in a case where the purchase is a $1M home.) Nobody EVER needs a tax deduction in the form of home mortgage interest. Mortgage interest costs REAL money. It NEVER pays to buy a dollar for dollar deduction. If it did, no one would ever complain about my fees, since they’d be essentially free after taxes.
If someone is fortunate enough to have the flexibility like the OP does, it’s a pure investment decision. Taxes are a variable like they are for all investments. They are usually not the driver. Net return is.[/quote]
Thanks, SK. It’s just odd how you constantly hear the “tax savings” being touted as the reason one should get a mortgage. It’s surprisingly common to hear people push this, as if it’s always a good idea.
August 4, 2011 at 4:14 AM #715529Participant[quote=SK in CV][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.
Am I missing something?
[/quote]
No, you’re not. You’ve identified something that should be obvious, yet I don’t know how many times I’ve had new clients come to see me, with huge mortgages, and they tell me that their prior CPA told them to buy the most expensive house they could and borrow as much as possible to save taxes. Friggen morons.
It’s simple. If the question is to put another $100K down, or borrow another $100K, if the taxable return on investing the $ is the same as the interest rate on the loan, taxes will be almost exactly the same. (there are some exceptions to this, but those exceptions would certainly not apply in a case where the purchase is a $1M home.) Nobody EVER needs a tax deduction in the form of home mortgage interest. Mortgage interest costs REAL money. It NEVER pays to buy a dollar for dollar deduction. If it did, no one would ever complain about my fees, since they’d be essentially free after taxes.
If someone is fortunate enough to have the flexibility like the OP does, it’s a pure investment decision. Taxes are a variable like they are for all investments. They are usually not the driver. Net return is.[/quote]
Thanks, SK. It’s just odd how you constantly hear the “tax savings” being touted as the reason one should get a mortgage. It’s surprisingly common to hear people push this, as if it’s always a good idea.
August 4, 2011 at 4:14 AM #715684Participant[quote=SK in CV][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.
Am I missing something?
[/quote]
No, you’re not. You’ve identified something that should be obvious, yet I don’t know how many times I’ve had new clients come to see me, with huge mortgages, and they tell me that their prior CPA told them to buy the most expensive house they could and borrow as much as possible to save taxes. Friggen morons.
It’s simple. If the question is to put another $100K down, or borrow another $100K, if the taxable return on investing the $ is the same as the interest rate on the loan, taxes will be almost exactly the same. (there are some exceptions to this, but those exceptions would certainly not apply in a case where the purchase is a $1M home.) Nobody EVER needs a tax deduction in the form of home mortgage interest. Mortgage interest costs REAL money. It NEVER pays to buy a dollar for dollar deduction. If it did, no one would ever complain about my fees, since they’d be essentially free after taxes.
If someone is fortunate enough to have the flexibility like the OP does, it’s a pure investment decision. Taxes are a variable like they are for all investments. They are usually not the driver. Net return is.[/quote]
Thanks, SK. It’s just odd how you constantly hear the “tax savings” being touted as the reason one should get a mortgage. It’s surprisingly common to hear people push this, as if it’s always a good idea.
August 4, 2011 at 4:14 AM #716043Participant[quote=SK in CV][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.
Am I missing something?
[/quote]
No, you’re not. You’ve identified something that should be obvious, yet I don’t know how many times I’ve had new clients come to see me, with huge mortgages, and they tell me that their prior CPA told them to buy the most expensive house they could and borrow as much as possible to save taxes. Friggen morons.
It’s simple. If the question is to put another $100K down, or borrow another $100K, if the taxable return on investing the $ is the same as the interest rate on the loan, taxes will be almost exactly the same. (there are some exceptions to this, but those exceptions would certainly not apply in a case where the purchase is a $1M home.) Nobody EVER needs a tax deduction in the form of home mortgage interest. Mortgage interest costs REAL money. It NEVER pays to buy a dollar for dollar deduction. If it did, no one would ever complain about my fees, since they’d be essentially free after taxes.
If someone is fortunate enough to have the flexibility like the OP does, it’s a pure investment decision. Taxes are a variable like they are for all investments. They are usually not the driver. Net return is.[/quote]
Thanks, SK. It’s just odd how you constantly hear the “tax savings” being touted as the reason one should get a mortgage. It’s surprisingly common to hear people push this, as if it’s always a good idea.
August 4, 2011 at 6:38 AM #714846SK in CV
Participant[quote=CA renter][quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.Am I missing something?
[/quote]The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.
Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.
It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.
If you compare
A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.
Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]
The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.
[/quote]
No, the original question was not cash or get a mortgage. The question was how big of a mortgage. All cash wasn’t an option. And I’m quite sure I didn’t address rent vs. buy.
August 4, 2011 at 6:38 AM #714938Participant[quote=CA renter][quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.Am I missing something?
[/quote]The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.
Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.
It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.
If you compare
A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.
Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]
The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.
[/quote]
No, the original question was not cash or get a mortgage. The question was how big of a mortgage. All cash wasn’t an option. And I’m quite sure I didn’t address rent vs. buy.
August 4, 2011 at 6:38 AM #715539Participant[quote=CA renter][quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.Am I missing something?
[/quote]The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.
Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.
It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.
If you compare
A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.
Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]
The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.
[/quote]
No, the original question was not cash or get a mortgage. The question was how big of a mortgage. All cash wasn’t an option. And I’m quite sure I didn’t address rent vs. buy.
August 4, 2011 at 6:38 AM #715694Participant[quote=CA renter][quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.Am I missing something?
[/quote]The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.
Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.
It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.
If you compare
A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.
Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]
The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.
[/quote]
No, the original question was not cash or get a mortgage. The question was how big of a mortgage. All cash wasn’t an option. And I’m quite sure I didn’t address rent vs. buy.
August 4, 2011 at 6:38 AM #716054Participant[quote=CA renter][quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.Am I missing something?
[/quote]The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.
Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.
It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.
If you compare
A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.
Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]
The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.
[/quote]
No, the original question was not cash or get a mortgage. The question was how big of a mortgage. All cash wasn’t an option. And I’m quite sure I didn’t address rent vs. buy.
August 4, 2011 at 8:58 AM #714892(former)FormerSanDiegan
Participant[quote=CA renter][quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.Am I missing something?
[/quote]The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.
Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.
It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.
If you compare
A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.
Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]
The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.
IMHO, if one can get a fairly safe and consistent after-tax ROI that would be equal to or greater than the post-deduction mortgage interest (and origination) costs, then it could be argued that they should use a mortgage and invest the cash.
The problem is that many people talk about the “tax savings” of a mortgage, without considering the costs associated with the mortgage (interest and fees). If you’re paying a dollar in interest, just to save the 30-40 cents (or less!) from the mortgage interest deduction, you’re not thinking straight. You have to look at the net benefit of getting a mortgage and using that cash in other ways, vs. paying cash and getting a “guaranteed” return that’s equal to the mortgage interest and origination costs — and this “return” is tax-free, because savings aren’t taxed.
——————-As far as the rent vs. buy issue, you also have to consider appreciation/depreciation, maintenance costs, the benefit of flexibility, whether or not your income is going to be stable/up/down over the next 30 years, the benefit of stability/control of housing costs, the benefit of owning a house outright in retirement, whether or not the MID is really going to make a difference in your tax situation, etc. There are a lot of things to consider when trying to decide if one should buy or rent. Realtors like to make it sound as though the MID is proof enough of the benefit of buying, but that’s a very simplistic and dangerous way to look at it, IMO.[/quote]
Agreed. So it’s not just paying $1 to get 30-40 cents in savings. Many other factors.
August 4, 2011 at 8:58 AM #714983Participant[quote=CA renter][quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.Am I missing something?
[/quote]The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.
Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.
It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.
If you compare
A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.
Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]
The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.
IMHO, if one can get a fairly safe and consistent after-tax ROI that would be equal to or greater than the post-deduction mortgage interest (and origination) costs, then it could be argued that they should use a mortgage and invest the cash.
The problem is that many people talk about the “tax savings” of a mortgage, without considering the costs associated with the mortgage (interest and fees). If you’re paying a dollar in interest, just to save the 30-40 cents (or less!) from the mortgage interest deduction, you’re not thinking straight. You have to look at the net benefit of getting a mortgage and using that cash in other ways, vs. paying cash and getting a “guaranteed” return that’s equal to the mortgage interest and origination costs — and this “return” is tax-free, because savings aren’t taxed.
——————-As far as the rent vs. buy issue, you also have to consider appreciation/depreciation, maintenance costs, the benefit of flexibility, whether or not your income is going to be stable/up/down over the next 30 years, the benefit of stability/control of housing costs, the benefit of owning a house outright in retirement, whether or not the MID is really going to make a difference in your tax situation, etc. There are a lot of things to consider when trying to decide if one should buy or rent. Realtors like to make it sound as though the MID is proof enough of the benefit of buying, but that’s a very simplistic and dangerous way to look at it, IMO.[/quote]
Agreed. So it’s not just paying $1 to get 30-40 cents in savings. Many other factors.
August 4, 2011 at 8:58 AM #715584Participant[quote=CA renter][quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.Am I missing something?
[/quote]The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.
Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.
It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.
If you compare
A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.
Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]
The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.
IMHO, if one can get a fairly safe and consistent after-tax ROI that would be equal to or greater than the post-deduction mortgage interest (and origination) costs, then it could be argued that they should use a mortgage and invest the cash.
The problem is that many people talk about the “tax savings” of a mortgage, without considering the costs associated with the mortgage (interest and fees). If you’re paying a dollar in interest, just to save the 30-40 cents (or less!) from the mortgage interest deduction, you’re not thinking straight. You have to look at the net benefit of getting a mortgage and using that cash in other ways, vs. paying cash and getting a “guaranteed” return that’s equal to the mortgage interest and origination costs — and this “return” is tax-free, because savings aren’t taxed.
——————-As far as the rent vs. buy issue, you also have to consider appreciation/depreciation, maintenance costs, the benefit of flexibility, whether or not your income is going to be stable/up/down over the next 30 years, the benefit of stability/control of housing costs, the benefit of owning a house outright in retirement, whether or not the MID is really going to make a difference in your tax situation, etc. There are a lot of things to consider when trying to decide if one should buy or rent. Realtors like to make it sound as though the MID is proof enough of the benefit of buying, but that’s a very simplistic and dangerous way to look at it, IMO.[/quote]
Agreed. So it’s not just paying $1 to get 30-40 cents in savings. Many other factors.
August 4, 2011 at 8:58 AM #715739Participant[quote=CA renter][quote=FormerSanDiegan][quote=CA renter]
I’ve often questioned the wisdom of paying a dollar in interest in order to save 30-40 cents in taxes.Am I missing something?
[/quote]The answer to your question is yes, you are missing something in that statement. You are missing the alternatives for comparison.
Obviously in a vacuum it makes no sense to pay $1 to save 30-40 cents in taxes.
It’s not as simple as comparing paying a dollar to get 30-40 cents back versus not paying that dollar.
If you compare
A. paying $1 and saving 30-40cents in taxes (by having a mortgage)
to
B. paying 75 cents and saving zero in taxes (by renting)
it might make sense, depending on other deductions relative to the standard deduction.You can also compare the use of cash for other inverstments versus buying a place for cash as others have above.
Of course, I know that you know these things. It’s just that the wisdom (or lack therof) of paying a dollar to get 30-40 cents back, depends on the alternatives.[/quote]
The OP was questioning whether he should pay cash, or get a mortgage. It wasn’t a rent vs. buy issue.
IMHO, if one can get a fairly safe and consistent after-tax ROI that would be equal to or greater than the post-deduction mortgage interest (and origination) costs, then it could be argued that they should use a mortgage and invest the cash.
The problem is that many people talk about the “tax savings” of a mortgage, without considering the costs associated with the mortgage (interest and fees). If you’re paying a dollar in interest, just to save the 30-40 cents (or less!) from the mortgage interest deduction, you’re not thinking straight. You have to look at the net benefit of getting a mortgage and using that cash in other ways, vs. paying cash and getting a “guaranteed” return that’s equal to the mortgage interest and origination costs — and this “return” is tax-free, because savings aren’t taxed.
——————-As far as the rent vs. buy issue, you also have to consider appreciation/depreciation, maintenance costs, the benefit of flexibility, whether or not your income is going to be stable/up/down over the next 30 years, the benefit of stability/control of housing costs, the benefit of owning a house outright in retirement, whether or not the MID is really going to make a difference in your tax situation, etc. There are a lot of things to consider when trying to decide if one should buy or rent. Realtors like to make it sound as though the MID is proof enough of the benefit of buying, but that’s a very simplistic and dangerous way to look at it, IMO.[/quote]
Agreed. So it’s not just paying $1 to get 30-40 cents in savings. Many other factors.
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