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It's not rocket science. If you can reap thousands upon thousands of actual dollars worth of actual tax reductions from your home purchase, you are going to be able to bid more for the place than you could without those extra thousands behind you.
What makes so holy the notion of "putting away" the difference? Do you hold some sort of ascetic beliefs of other? No matter how they are taken, the cash benefits of a refi simply float into the same pot as your paycheck and other sources of revenue. How those accumulated balances are ultimately spent or not is and presumably should be a matter of some personal discretion.
There are limitations. To qualify for the mortgage interest tax deduction, you have to itemize when you file your taxes. By itemizing, you forgo the standard deduction. If you don't itemize MID means crap. You're also limited to 1 million dollars. Anything past that you can't deduct anyway. The MID deduction varies by income. The upper income gets to deduct 2-4K. 100-200 averages 2k the over 200 averages 4K. Anything under 100k averages $500 mid. (Granted these are averages not set in stone)
MID helps but it's not the end all be all for everyone. For some people it's not even in the equation. For myself sure there are some tax savings by itemizing and deducting MID. I'm not saying it's worthless. It's just not advantageous for everyone.
As far as my beliefs of others I don't much care what people do with their finances. It's a figure of speech. The only way you're saving IS by putting it away/investing it. Simply telling yourself "I'm saving $200 a month by refinancing" and then spending that $200 on going out frivolous things you're not saving anything. My buddy seems to have that definition. He moved to a cheaper rental to save money. All he ended up doing was accelerate his spending because of the extra cash that he had available. He wasn't actually saving anything. But in his mind he was "saving" on rent. What makes "putting it away" holy is that's how you save.
Quote:
Originally Posted by freemkt
Two home seekers look at homes for sale, pull out calculators, say "if I pay $N for this house, the mortgage interest deduction will being my effective monthly payment to $X. But I can afford a monthly payment of $2X. Since I am competing with another bidder for this home, I need to outbid my opponent, so I'll offer $1.5N.
The mortgage interest deduction enabled the successful buyer to offer $1.5N rather than $N.
Just as so many consumers make poor personal finance decisions on the basis of EFFECTIVE MONTHLY payments, many homebuyers use the same thinking when buying a home.
First if all MID is only good up to a million borrowed. And not everyone itemizes. So not everyone benefits from MID. The tactic of going into bigger debt now to get a house so I can deduct MID is asinine. You're limited on how much you deduct. And you still overpaid which has its own consequences
MID may save you money on taxes but it doesn't allow you to bid higher. You need money and credit to bid higher
Nothing you say makes any sense to me. I have no idea what it is you are talking about. If my personal situation is not responsible for forming my political leanings, then I don't know what is.
Consider it in a state income tax context. (Unlike Congress, states cannot borrow-and-spend, MUST balance their books annually, and MUST spend within their means.)
Consider a hypothetical state with a flat tax rate of 10%. Now consider that MID hypothetically reduces the rate to 5% for half of all taxpayers, and that in the absence of MID, the state could raise equivalent revenue (hence revenue-neutral) with a flat tax rate of 7.5 percent.
In this hypothetical case, state MID redistributes income from taxpayers paying 10% tax rate to taxpayers paying 5% tax rate.
If Taxpayer B could pay 7.5 percent in the absence of MID, and is paying 10% in the presence of MID, how is B's money NOT being redistributed to Taxpayer A who pays only 5 percent?
If you are saying that A is merely "keeping more of his own money" then you are effectively saying that the excess taxes paid by B belong to the government!!!
Remember, states cannot print their own money like the Fed does. A's tax break must be paid for with either spending reductions or tax dollars paid by B. What are you not seeing here?
"Redistribution" requires taking from one and giving to another. One who deducts mortgage interest isn't being given anything.
When Bob takes the MID, how much more does Tom pay, and what is the mechanism by which this tax increase happens?
People already know what they are and what if any actual affect they will have.
Quote:
Originally Posted by Electrician4you
It's a figure of speech. The only way you're saving IS by putting it away/investing it.
Actually, it's a fallacy of equivocation -- using one definition of a word where a different one is called for.
Quote:
Originally Posted by Electrician4you
Simply telling yourself "I'm saving $200 a month by refinancing" and then spending that $200 on going out frivolous things you're not saving anything.
One would be very plainly saving $200. It is not going away as part of your monthly mortgage payment anymore. Like found money, it becomes yours free and clear to do with what you want.
Quote:
Originally Posted by Electrician4you
The tactic of going into bigger debt now to get a house so I can deduct MID is asinine.
LOL! Almost the last thing I did before retiring six years ago was refinance the mortgage and then reopen the paid-off equity line. The simple financial sense of those moves steam-rollered all the Dave Ramsey religious mumbo-jumbo in the world.
Quote:
Originally Posted by Electrician4you
MID may save you money on taxes but it doesn't allow you to bid higher. You need money and credit to bid higher
And like all the others, the HMI deduction helps put money in your pocket. Lots of money in many cases. Failure to understand this is pretty much inexplicable.
LOL! Almost the last thing I did before retiring six years ago was refinance the mortgage and then reopen the paid-off equity line. The simple financial sense of those moves steam-rollered all the Dave Ramsey religious mumbo-jumbo in the world.
<<SNIP>>
Above is your response to the quote below:
Quote:
Originally Posted by Electrician4you The tactic of going into bigger debt now to get a house so I can deduct MID is asinine.
Did you re-finance your house so that you would be able to 1) Deduct mortgage interest, or 2) Be able to take advantage of arbitrage opportunities vis-a-vis your mortgage interest rate?
If you did it because of #1, you're a fool. If you did it because of #2, your response to Electrician4you was intellectually dishonest in the extreme.
Did you re-finance your house so that you would be able to 1) Deduct mortgage interest, or 2) Be able to take advantage of arbitrage opportunities vis-a-vis your mortgage interest rate?
Refinancing allowed me to upgrade cash-flow by reducing my monthly mortgage payment, while at the same time padding my HMI deduction by front-loading the interest portion of those payments all over again. Win-win. The equity line bit provided a renewed low-interest ten-year draw period to buffer against having to liquidate performing assets in order to meet elective or other expenditure blips. Household Finance 101.
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