Home > Personal Finances > Debunking Importance of Mortgage Interest as a Tax Write-off

Debunking Importance of Mortgage Interest as a Tax Write-off

We’re in the process of refinancing our mortgage down to a 15-year, 3.0% interest rate.  Three – point – oh.  Insane!  Our previous rate was a crazy-low 4.375%, but when looking at how much money we’re going to save over the lifetime of the mortgage, it’s a no-brainer.  I highly recommend everyone looks into this!

However, I’ve heard a few people who thought the 15-year mortgage was unnecessary (as opposed to 30-year) because of the tax write-off.  It’s surprising people would want to stay in debt just for the tax write-off, but let’s take a look at the math…

                                   Scenario A    Scenario B
A - Taxable Income                   $100,000      $100,000
B - Interest Paid (tax deduction)     $10,000            $0
C - Final Taxable Income              $90,000      $100,000   (A - B)
D - Taxes Paid (30% rate)             $27,000       $30,000   (C * 0.3)
E - Final Cash on hand                $63,000       $70,000   (C - D)

So, after examining Lines B and D above, the people that want the tax write-off would rather pay $10,000 to the bank in order to pay the government $3,000 less in taxes?

I know this is a simplified scenario, but you see how obvious it is to pay off your house asap, right?!

Here’s some more helpful info on mortgages from the best financial resource out there, Dave Ramsey: The Truth About Mortgages.

Advertisements
  1. 2 July 2012 at 16:59

    Excellent math, and excellent points. I don’t know why so many people cling to these foolhardy notions.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: