Mortgage – Taxes and Time

    Published: 06-16-2009
    Views: 4,926
    Financial Advisor Ric Edelman explains the top reasons for carrying a mortgage including taxes and time.

    Ric Edelman: Hi! I'm Rick Edelman. We are talking about the 11 reasons to carry a big long mortgage. Here are three more reasons why mortgages are great.

    Reason number four. Your mortgage interest is tax deductible, and reason number five, mortgage interest is tax favorable, these two points are related, let me show you why.

    Interest you pay on a mortgages is tax-deductible up to $8 million. The deduction is taken at your top tax bracket. If you are in the 35% tax bracket every dollar you pay in mortgage interest it saves you $0.

    35 in federal taxes, you save state taxes too. Let's say you are in the 25% bracket and your mortgage rate is 7%, that means the loan costs you 5.

    25 after taxes and here's the best part.

    When you earn profits from investments those profits are taxed at only 15%, maybe even less, and that means if you invest money and earn 7% your profits are taxed at only 15, your after-tax profit is nearly 6%. Even if your investments earn no more than what you pay for the mortgage you're still making a profit after tax.

    And here is reason number six, mortgage payments get easier over time. If you have a fixed-rate loan the payment stays the same for 30 years, but your income will probably rise, and that means relative to your income, over time your payment gets easier-and-easier.