Would you have done this?

[an]

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.

[an]

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.

[sdcellar]

Wow AN, you’re really fighting hard to support your case. The rates are now even more favorable to your position, you’ve got liquidity and a long term capital gains rate thrown in (it’s got to be one or the other). Heck, if you used Excel, then your deduction should be $972 or something, not a hundred dollar range (let me guess, it was lower than you thought…)

Some of your points are valid (e.g. savings earning rate likely to go up), but for the here and now, you’d be losing money *and* you’d need considerable income to cover the higher payments (or I forgot, are you liquid or not?!).

As far as the tax benefit going down as you deduct more and more, it brings your effective income down, so the last dollar of deduction won’t usually be at the same rate as the first dollar.

And whoa, I don’t even get what you’re talking about regarding prolonging the tax write-off (and I suspect you don’t either). Finally, compound interest, taking advantage? How do you think a mortgage works? I think it might be taking advantage of you…

[sdcellar]

Wow AN, you’re really fighting hard to support your case. The rates are now even more favorable to your position, you’ve got liquidity and a long term capital gains rate thrown in (it’s got to be one or the other). Heck, if you used Excel, then your deduction should be $972 or something, not a hundred dollar range (let me guess, it was lower than you thought…)

Some of your points are valid (e.g. savings earning rate likely to go up), but for the here and now, you’d be losing money *and* you’d need considerable income to cover the higher payments (or I forgot, are you liquid or not?!).

As far as the tax benefit going down as you deduct more and more, it brings your effective income down, so the last dollar of deduction won’t usually be at the same rate as the first dollar.

And whoa, I don’t even get what you’re talking about regarding prolonging the tax write-off (and I suspect you don’t either). Finally, compound interest, taking advantage? How do you think a mortgage works? I think it might be taking advantage of you…

[PD]

It would work out great if interest rates went over 8%. It would be like your own personal carry trade.

[PD]

It would work out great if interest rates went over 8%. It would be like your own personal carry trade.

[an]

Some of your points are valid (e.g. savings earning rate likely to go up), but for the here and now, you’d be losing money *and* you’d need considerable income to cover the higher payments (or I forgot, are you liquid or not?!).
My calculation shows that the saving interest you make should cover most of the difference in the increase mortgage payment. If my calculation is wrong, please show me. I’m hear to learn just like everyone else.

And whoa, I don’t even get what you’re talking about regarding prolonging the tax write-off (and I suspect you don’t either). Finally, compound interest, taking advantage? How do you think a mortgage works? I think it might be taking advantage of you…

All I mean by this is if the difference in savings rate and mortgage rate gives you an advantage, why not extract your equity and have it work for you with no extra risk? You can always pay it back anytime.

[an]

Some of your points are valid (e.g. savings earning rate likely to go up), but for the here and now, you’d be losing money *and* you’d need considerable income to cover the higher payments (or I forgot, are you liquid or not?!).
My calculation shows that the saving interest you make should cover most of the difference in the increase mortgage payment. If my calculation is wrong, please show me. I’m hear to learn just like everyone else.

And whoa, I don’t even get what you’re talking about regarding prolonging the tax write-off (and I suspect you don’t either). Finally, compound interest, taking advantage? How do you think a mortgage works? I think it might be taking advantage of you…

All I mean by this is if the difference in savings rate and mortgage rate gives you an advantage, why not extract your equity and have it work for you with no extra risk? You can always pay it back anytime.

[recordsclerk]

Is the interest from a CD capital gain at 15% or taxed as income? Any tax experts want to answer this.

[recordsclerk]

Is the interest from a CD capital gain at 15% or taxed as income? Any tax experts want to answer this.

[sdcellar]

AN– Using your numbers, 6.5% loan, 5.3% return, 37% tax bracket, you’ll lose $3,926 in the first year or $217.65 a month.

[sdcellar]

AN– Using your numbers, 6.5% loan, 5.3% return, 37% tax bracket, you’ll lose $3,926 in the first year or $217.65 a month.

[NotCranky]

I saw AN post last night and you guys have beat me to it.
Just looking at the tax question in a straight forward way. Why would anyone want to pay the government $3 to get $1 back? Of course if you have to or want to have a mortgage the write off is a good thing leaving fairness to non-owners out of course..

Mortgage money is pretty cheap still,even so
Putting mortgage money into savings long term is a no go obviously.Putting it into cd’s or opening a heloc and trying to time the market housing for leverage investment is another thing especially if there are other asset available to cover.Some people like the idea, some don’t but it has been successful over and over.The opportunity costs of having disappearing equity tied up in a house in a down cycle are big for average wealth people.This cycle for those holders me included, might end up like winning the lottery and watching it dissappear.Of course we have an advantage going forward because our debt load is low but not because we are making the most sound financial decision. Mortgage money is pretty cheap but most of us are dependent on wages to pay for it. I don’t think an investor needs to make a paid off house a sacred thing, regardless of how comfy it might be and it could be leveraged to good results.

Another thing..If a house is not an investment why have so many of us paid for “homes” with the gains from other “homes” which would never have happened if we made a stupid investment into the first,second, third…one?
Yeah, I know I am preaching to the choir, mostly.

[NotCranky]

I saw AN post last night and you guys have beat me to it.
Just looking at the tax question in a straight forward way. Why would anyone want to pay the government $3 to get $1 back? Of course if you have to or want to have a mortgage the write off is a good thing leaving fairness to non-owners out of course..

Mortgage money is pretty cheap still,even so
Putting mortgage money into savings long term is a no go obviously.Putting it into cd’s or opening a heloc and trying to time the market housing for leverage investment is another thing especially if there are other asset available to cover.Some people like the idea, some don’t but it has been successful over and over.The opportunity costs of having disappearing equity tied up in a house in a down cycle are big for average wealth people.This cycle for those holders me included, might end up like winning the lottery and watching it dissappear.Of course we have an advantage going forward because our debt load is low but not because we are making the most sound financial decision. Mortgage money is pretty cheap but most of us are dependent on wages to pay for it. I don’t think an investor needs to make a paid off house a sacred thing, regardless of how comfy it might be and it could be leveraged to good results.

Another thing..If a house is not an investment why have so many of us paid for “homes” with the gains from other “homes” which would never have happened if we made a stupid investment into the first,second, third…one?
Yeah, I know I am preaching to the choir, mostly.

[sdrealtor]

BTW, I do believe in having a big old HELOC open for liquidity purposes just in case. You never know what might happen in life or what might come your way and it’s a nice luxury to know you or your family could write a 6 figure check if you had to.

[Author]

Posts