Making Money with Your Mortgage (Links)

Making Money with Your Mortgage

2006-09-21 12:43 - Links

Even though Bob had $18,000 taken out of the funds every year to pay the interest on the line of credit, the ending balance of his funds after 5 years is up over $70,000. In addition to that, Bob has been getting huge tax refunds every year because he was able to deduct the interest on the line of credit, which was paid by the SWP and not him.

My current life plan is to save, save, save, until I can afford to buy a small house with cash. Then, find a job somewhere near where I can find a small house in my price range, and move. The overall idea is that I can rot away here in New York City, earning the inflated NYC wages, and get my stress out of the way over a few years while I'm young. Then, once my housing is taken care of, I just need to cover property tax, and most any easy job I can find will keep me comfortable.

People have told me, when hearing this, that it's a much better idea to get a mortgage. They mention things like tax savings, and how the stock market can outperform the interest. It all seems wishy-washy and hard to rely on. But here's an article that explains the whole mortgage mess in slightly clearer fashion. Gonna make me think a bit.

Comments:

mortgage
2006-09-22 09:31 - kathaclysm

I own a house, but my husband does all the bills, so I'm probably not going to be of too much help. I do know however, that he is very smart with money (hence he takes care of the bills) and his parents are very smart with money. And although his folks can fully afford to buy a house in cash, they too have a mortgage. They have very good credit, so the interest on the home mortgage is low, plus there are the tax breaks. I too at first that this didn't seem to be the most advantageous, but if you can invest the "borrowed" money in such a way as to get more than you're paying in interest, I guess that's good. Until you get there, get yourself an ING high yield acct. Money; it's always gotta be more complicated than it seems at first.

Tax Breaks
2006-09-22 09:45 - arantius

See there we go. People always mention the "tax breaks" of having a mortgage. I never investigated it formally, but it always seemed intuitively wrong. So how about reading a page that claims to explain it all?

Choice quotes from that page:

"homeowners can claim an itemized deduction for interest on up to $1 million worth of mortgage debt"
"The first thing to understand is that your actual tax breaks from homeownership may be less than expected [because of] the standard deduction"

That's a big point right there. Since I'm single, I can take almost $5,000 as the standard deduction. I have to spend that much, out of my pocket, on interest for a mortgage. Then, after that, I can claim a deduction for every extra dollar spent on a mortgage or property taxes. But, so what? I still have to pay those dollars, to deduct them. So what if I save a few bucks on taxes? I have to spend 3x what I don't pay on taxes to get the deduction. Someone explain to me how claiming a deduction, because I had to pay interest, puts me in the black overall?

Then, even without that, there's the whole investment thing. Relying on any particular investment to beat the mortgage's rate isn't exciting. Paying all the interest on the mortgage isn't exciting. Still having that payment to make each month: not exciting.

And, I did have my money in ING. I moved it to HSBCdirect because they have a better rate (5.05% over 4.4%).

Tax breaks
2006-10-16 19:28 - Gerry157

The previous post makes a valid point that you have to pay the mortgage interest in order to deduct only part of it. From that prespective, it does not make sense. However, most people have to pay something for housing, and most cannot pay cash for a house. The alternative is to rent. No part of your rent is tax deductiable. For the first 20 years of a typical 30 year mortgage, most of your payment is interest (very little to principal). So in essence, you are able to get a tax deduction for your housing costs.

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