City-Data Forum Advice needed re: retirement and large cash savings (locations, year, federal)
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05-01-2015, 02:34 PM
 Location: CT 3,461 posts, read 1,863,708 times Reputation: 4614

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I still don't get why people think they are somehow saving money by paying a mortgage, I don't care what the interest rate is. You can only deduct the interest that you pay the bank, so if you're at that 50/50 P/I point, the bank gets 50% and 50% goes to the principle. If your payment is \$1000/month:

interest is \$500/mo. X 12 mos.= \$6000/yr

Federal taxes (filing jointly) on an income of \$50K= about \$3488

Federal taxes (filing jointly) on an income of \$44K= about \$2588 (taking the mortgage interest off the top)

The difference is only \$900, you're spending \$6000 to get a \$900 benefit?????? If you can get that weight off your back, get rid of the monthly payment to the bank and start paying yourself that \$1K/month!

05-01-2015, 03:16 PM
 6,344 posts, read 4,777,318 times Reputation: 13013
Quote:
 Originally Posted by snowtired14 I still don't get why people think they are somehow saving money by paying a mortgage, I don't care what the interest rate is. You can only deduct the interest that you pay the bank, so if you're at that 50/50 P/I point, the bank gets 50% and 50% goes to the principle. If your payment is \$1000/month: interest is \$500/mo. X 12 mos.= \$6000/yr Federal taxes (filing jointly) on an income of \$50K= about \$3488 Federal taxes (filing jointly) on an income of \$44K= about \$2588 (taking the mortgage interest off the top) The difference is only \$900, you're spending \$6000 to get a \$900 benefit?????? If you can get that weight off your back, get rid of the monthly payment to the bank and start paying yourself that \$1K/month!
I took a mortgage I did not need at a low rate. The tax savings are only part of the benefit. I kept the \$300K or so that I borrowed at a low rate and invested it. I have been earning close to \$30K per year. That pays the mortgage and gives me a nice return in addition. This is not a difficult concept.

05-01-2015, 03:36 PM
 Location: Great State of Texas 86,093 posts, read 72,653,877 times Reputation: 27566
Quote:
 Originally Posted by jrkliny I took a mortgage I did not need at a low rate. The tax savings are only part of the benefit. I kept the \$300K or so that I borrowed at a low rate and invested it. I have been earning close to \$30K per year. That pays the mortgage and gives me a nice return in addition. This is not a difficult concept.
May I ask what you invested in that you are getting a 10% return ?

05-01-2015, 04:21 PM
 14,277 posts, read 24,050,959 times Reputation: 20122
Quote:
 Originally Posted by snowtired14 I still don't get why people think they are somehow saving money by paying a mortgage, I don't care what the interest rate is. You can only deduct the interest that you pay the bank, so if you're at that 50/50 P/I point, the bank gets 50% and 50% goes to the principle. If your payment is \$1000/month: interest is \$500/mo. X 12 mos.= \$6000/yr Federal taxes (filing jointly) on an income of \$50K= about \$3488 Federal taxes (filing jointly) on an income of \$44K= about \$2588 (taking the mortgage interest off the top) The difference is only \$900, you're spending \$6000 to get a \$900 benefit?????? If you can get that weight off your back, get rid of the monthly payment to the bank and start paying yourself that \$1K/month!

You are making an assumption that the person is even ITEMIZING their deductions which might not be the case in a low income tax state at that income level. The benefit could be zero.

05-01-2015, 05:42 PM
 72,085 posts, read 72,068,214 times Reputation: 49621
most of america cannot itemize. the ability to itemize even if a homeowner is dependent on total income level.

05-01-2015, 05:49 PM
 Location: Great State of Texas 86,093 posts, read 72,653,877 times Reputation: 27566
Once I retired I the standard deduction gave me back more than itemizing.
Before that itemizing gave me more.

05-01-2015, 06:01 PM
 Location: CT 3,461 posts, read 1,863,708 times Reputation: 4614
Quote:
 Originally Posted by mathjak107 most of america cannot itemize. the ability to itemize even if a homeowner is dependent on total income level.
Nice info! But only makes sense, right?

05-01-2015, 06:11 PM
 Location: CT 3,461 posts, read 1,863,708 times Reputation: 4614
Quote:
 Originally Posted by jrkliny I took a mortgage I did not need at a low rate. The tax savings are only part of the benefit. I kept the \$300K or so that I borrowed at a low rate and invested it. I have been earning close to \$30K per year. That pays the mortgage and gives me a nice return in addition. This is not a difficult concept.
Not difficult at all, at 10% return, I can't argue with you. But, to get 10% you have to be at moderate to high risk, if the market tanks your money is at risk as well as your ability to pay for the low interest mortgage. As long as things stay as they are, sounds like you'll do well.

05-01-2015, 06:21 PM
 72,085 posts, read 72,068,214 times Reputation: 49621
Quote:
 Originally Posted by HappyTexan Once I retired I the standard deduction gave me back more than itemizing. Before that itemizing gave me more.
that is why renters may get the better tax deal. they fly the same empty seats. they have little to deduct and get back a whole lot more from the standard deduction ,especially a couple.

05-01-2015, 06:42 PM
 6,344 posts, read 4,777,318 times Reputation: 13013
Quote:
 Originally Posted by snowtired14 Not difficult at all, at 10% return, I can't argue with you. But, to get 10% you have to be at moderate to high risk, if the market tanks your money is at risk as well as your ability to pay for the low interest mortgage. As long as things stay as they are, sounds like you'll do well.
I don't expect to get a 10% return indefinitely. My portfolio is well diversified with about 60% stocks. I have very little concern about the market tanking. I had almost all of my money out of the stock market in 2008. I will do the same well before any major volatility in the future. I have doubled my assets since 2008 and expect to do that again before the economy runs through the current cycle.
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