Posted on: 29th Jun, 2010 08:43 pm
I read this in a recent Forbes where the author says that interest is so low that it is actually free when you consider the tax breaks. Does anyone know how to do the math? For the past five years I have been making an additional principle payment of $1000 in addition to my regular mortgage. I am re-evaluating to consider if I should stop paying the extra $1000/month and stick the extra $1,000 in a CD
Specifics, I have 1 4.75%fixed rate loan, owe $186,000, am single, and earn $90,000/year. Thanks
Specifics, I have 1 4.75%fixed rate loan, owe $186,000, am single, and earn $90,000/year. Thanks
The calculation depends on your tax bracket as to whether or not you get to use the mortgage interest tax deduction in comparison to what you can earn elsewhere (what rate can you get on the CD) and consider also that while the interest earned on the CD may be low, you also pay taxes on interest earned.
Whenever inflation kicks in, the interest paid on savings accounts will rise. Until then, you are probably better off paying an extra $1,000 on the mortgage. When you can make savings interest of maybe 5% or more, start saving in the savings account and stop paying extra on the 4.75% mortgage.
Someone may do a more exact calculation for you, but, just use logic on it. While the loan may be somewhat interest free, the savings rates are so low, they are probably saving interest free after taxes also.
Whenever inflation kicks in, the interest paid on savings accounts will rise. Until then, you are probably better off paying an extra $1,000 on the mortgage. When you can make savings interest of maybe 5% or more, start saving in the savings account and stop paying extra on the 4.75% mortgage.
Someone may do a more exact calculation for you, but, just use logic on it. While the loan may be somewhat interest free, the savings rates are so low, they are probably saving interest free after taxes also.
I have not seen the article. Mortgage interest is tax deductible, so if you pay 25% taxes, 25% of the mortgage interest is "free".
