Left out is any discussion that some folks take a standard deduction, which renders the mortgage interest deduction useless. Furthermore there is no discussion of AMT. And for those savy enough to understand risk adjusted returns. The 4.4% return fails to address that completely. http://www.nytimes.com/2010/11/07/realestate/mortgages/07mort.html?ref=realestate PAYING off a mortgage or even paying... [more]
Left out is any discussion that some folks take a standard deduction, which renders the mortgage interest deduction useless. Furthermore there is no discussion of AMT. And for those savy enough to understand risk adjusted returns. The 4.4% return fails to address that completely.
http://www.nytimes.com/2010/11/07/realestate/mortgages/07mort.html?ref=realestate
PAYING off a mortgage or even paying down the balance early might seem enticing to most borrowers. There’s the big savings in interest payments and the freed-up cash flow that can result, not to mention the emotional benefit of wiping out what for most people is the largest financial burden of a lifetime.
Appealing? Yes. But is it worth it?
Because of the mortgage-interest deduction, that $58,496 is really costing you $42,117, assuming you’re in a 28 percent federal income tax bracket. So that 4.25 percent rate is really better seen as 3.06 percent.
Can you earn at least that much by putting that extra $200 into stocks? It all depends, of course, on timing. From 1990 through 2009, for example, the Standard & Poor’s 500-stock index had an annualized return of 8.23 percent. But from 2000 through 2009 the return was a negative 0.99 percent, though the market has improved this year.
“Right now, if you can earn better than 4.4 percent after taxes,” Mr. Losey said, “you’re probably better off investing the money than using it to prepay your mortgage.”
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