From: inevercheckthismailbox@yahoo.com (Andy)
Newsgroups: misc.invest.real-estate misc.invest.stocks misc.invest misc.consumers.frugal-living misc.consumers.house
Subject: Re: Let me get your opinion
Date: 15 Oct 2003 12:27:52 -0700

cmquinn@mindspring.com (Charles Quinn) wrote in message news:...
> 
> Take the extra money and pay off your current mortgage. You are then getting a 
> guaranteed return of your current interest rate, WITH NO RISK!
> 
> Don't worry about your tax break. It is a fallacy. Yes you get a break from 
> Uncle Sugar, but you are still paying the bank for that honor. Last year when 
> I did my taxes with and without my mortage, it cost me $2300 in interest to 
> have $300ish lower taxes. Take your own return and see how many thousands it 
> is costing you to get hundreds less in taxes. Subtract out your interest 
> payments and see what the difference is. Take that difference and compare it 
> with how much interest you paid to get that pittance.
> 
> I am now mortgage free and will gladly pay that lower tax bill than that 
> higher mortgage tax, er interest payments.

Charles,

I think you are actually understating how worthless the mortgage
interest deduction is these days.

The real amount you save in taxes thanks to carrying a mortgage is
equal to your interest expense less the amount of the standard
deduction, multiplied by your marginal tax rate.

The reason you subtract the amount of the standard deduction from your
interest expense is because you would have received that much of a
deduction even if you had no mortgage interest expense.  The only real
tax savings are to the extent your mortgage interest expense exceeds
the standard deduction.

The standard deduction for a married couple for 2003 is $9,500, which
means that unless you are in the first year of $160,000 (or greater)
mortgage (assuming 6% interest), you will not save one penny in taxes
because of the mortgage interest deduction because your interest
expense won't exceed $9,500. Of course this would change if you had a
lot of other deductible expenses too, but the average couple isn't
going to.

If you have a $200,000 mortgage at 6% in its first years your interest
expense will be 12,000, less $9,500 is $2,500 multipled by .28 (your
probable marginal tax rate if you have a mortgage this big) then you
save $700.  So you are paying $12,000 to save $700.

I once overhead a woman say that she would pay off her mortgage but
she needed the mortgage interest deduction on her taxes.

Andy