If you own a home, you may have been bombarded by so-called financial planners who have personal reasons for your paying off or not paying off your mortgage. For example, banks and other lenders want you to keep paying on your mortgage because it's, for the most part, reliable income for them. And real estate agents try to steer you toward an ever larger mortgage because that leads you to buy a more expensive house, which means that they will receive a higher commission. Then, there are the financial planners who want you to pay off your mortgage and put the money where they make a commission or a management fee. So, how do you decide?
With A Home Mortgage, You're Borrowing Cheap Money
In most cases, the interest you pay on your home mortgage is not taxed by the IRS or the state in which you live. Therefore, if you are in the 30-percent tax bracket and you pay $10,000 in interest on your home mortgage, your taxes will be reduced by approximately 1/3 on both your federal and state tax returns, if you itemize your deductions. So, you are actually paying about $6,600 instead of $10,000 in interest. To express it another way, if your mortgage calls for a 5 percent rate, you are actually paying a rate of about 3.3 percent. So, the case for holding on to your home mortgage is strengthened by this calculation.
Payments Become Easier to Make
When you first signed the mortgage on your house, like most people, you probably had a difficult time making the monthly mortgage payment. But, as your income rose, those payments became less of a problem. If you have lived in your home for a number of years, it probably has appreciated in value, making the loan payment even less significant. Instead of paying off that mortgage early, some people suggest that you invest your extra money each month.
If You Need Money, Remortgage
If your home has appreciated significantly in value, you don't have to sell it to take advantage of its increased worth. Simply replace that mortgage with a larger one and take the cash. Remember, even though you will be paying more interest as a result of the increase, you will receive a larger tax break. If your home has decreased in value, of course, it makes little sense for you to pay off your loan on it, since it is ultimately the bank that will take the loss on the declining value if a sale is forced and not you -- unless you have paid your mortgage in full.
Look at Your Other Financial Obligations
Make sure you are making the maximum contribution to your qualified retirement plan before you entertain thoughts about paying off your mortgage early. Consider other obligations, like paying off a car or your credit cards, before paying down your mortgage because you are paying much higher interest on them than you are paying on your mortgage.
Let Your Heart Guide You
Regardless of the wisdom of holding onto your mortgage for as long as possible, if you would feel better not having to make you monthly mortgage payments because you own the roof over your head, pay off your home mortgage as quickly as you can.
0 comments:
Post a Comment