View Poll Results: Which is the smarter option?

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  • A) Pay $10,000 in mortgage int. Save $3,960 taxes

    0 0%
  • B) Pay $0.00 in mortgage int. Save $0.00 taxes

    2 40.00%
  • C) other

    3 60.00%
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Thread: Which is the smarter option?

  1. #1
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    Which is the smarter option?

    A) Pay the mortgage company $10,000 in interest but save $3,960 in taxes

    or

    B) Pay off your mortgage and pay an additional $3,960 in taxes every year.

    Special Hint: Option A costs you $10,000. Option B costs you $3,960.
    Last edited by vasuderatorrent; 04-19-14 at 02:19 AM.

  2. #2
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    Re: Which is the smarter option?

    Quote Originally Posted by vasuderatorrent View Post
    A) Pay the mortgage company $10,000 in interest but save $3,960 in taxes

    or

    B) Pay the mortgage company $0.00 and pay an additional $3,960 in taxes

    Special Hint: Option A costs you $10,000. Option B costs you $3,960.
    Does not make real world sense since non-payment on a mortgage will incur more debt with the mortgage company and will put one into default and why would it then require to pay more in taxes then.
    An Enlightened Master is ideal only if your goal is to become a Benighted Slave. -- Robert Anton Wilson

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    Re: Which is the smarter option?

    Quote Originally Posted by Shadow Serious View Post
    Does not make real world sense since non-payment on a mortgage will incur more debt with the mortgage company and will put one into default and why would it then require to pay more in taxes then.
    Some people have sufficient cash to pay off their mortgage. Accountants will tell people not to pay off their mortgage because they will lose the tax deduction.

    I guess I did leave it wide open with a lot of details missing.

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    Re: Which is the smarter option?

    Quote Originally Posted by Shadow Serious View Post
    Does not make real world sense since non-payment on a mortgage will incur more debt with the mortgage company and will put one into default and why would it then require to pay more in taxes then.
    I think I made it clearer now.

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    Re: Which is the smarter option?

    Quote Originally Posted by vasuderatorrent View Post
    A) Pay the mortgage company $10,000 in interest but save $3,960 in taxes

    or

    B) Pay off your mortgage and pay an additional $3,960 in taxes every year.

    Special Hint: Option A costs you $10,000. Option B costs you $3,960.
    One can't give a good answer to your question - not enough info. If A means you have a mortgage and you have a property that's gaining equity at a good clip, then it's worth every penny at twice the price.
    To do evil, a human being must first of all believe that what hes doing is good" - Solzhenitsyn

    "...with the terrorists, you have to take out their families." - Donald Trump

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    Re: Which is the smarter option?

    Quote Originally Posted by Glen Contrarian View Post
    One can't give a good answer to your question - not enough info. If A means you have a mortgage and you have a property that's gaining equity at a good clip, then it's worth every penny at twice the price.
    I failed big time with this one.

    Let's say you have more than $300,000 in the bank. Your mortgage is $300,000. Should you pay it off or keep the mortgage in order to get the tax deduction?

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    Re: Which is the smarter option?

    Quote Originally Posted by vasuderatorrent View Post
    A) Pay the mortgage company $10,000 in interest but save $3,960 in taxes

    or

    B) Pay off your mortgage and pay an additional $3,960 in taxes every year.

    Special Hint: Option A costs you $10,000. Option B costs you $3,960.
    It depends on the interest rates. If your money can be reinvested at 0.5 percent but the mortgage costs 5 percent? In the last couple of years there have been situations, where the mortgage rate on old loans was lower than the reinvestment rates. In the latter case you would keep the loan and buy a bond.
    You will pay more taxes from the new income and have less deduction overall.
    What is important is that the maturities of the borrowings and investments are the same at hat the quality of the investment is such that the money is still there when you need it.

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    Re: Which is the smarter option?

    Quote Originally Posted by joG View Post
    It depends on the interest rates. If your money can be reinvested at 0.5 percent but the mortgage costs 5 percent? In the last couple of years there have been situations, where the mortgage rate on old loans was lower than the reinvestment rates. In the latter case you would keep the loan and buy a bond.
    You will pay more taxes from the new income and have less deduction overall.
    What is important is that the maturities of the borrowings and investments are the same at hat the quality of the investment is such that the money is still there when you need it.
    I'm going to have to go along with this also.
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    Re: Which is the smarter option?

    Quote Originally Posted by vasuderatorrent View Post
    I failed big time with this one.

    Let's say you have more than $300,000 in the bank. Your mortgage is $300,000. Should you pay it off or keep the mortgage in order to get the tax deduction?
    At first glance the tax deduction is worth less than two percent of that 300K, so it would seem that - if one is only considering the deduction - that keeping the money in an interest-bearing account is worth more. However, if one does not pay off the house for another year just so one can get the deduction, one also has to deal with the additional year's interest on that mortgage. But then, perhaps you're making enough interest on that 300K in investments to make up for that...but if the 300K's just in a bank, it's unlikely that you're making enough interest to cover for the interest on the loan, even with the additional tax break.

    In my opinion, even if the numbers might show that one makes more money by leaving the 300K in the bank, if I were you, if I were in a position that I could pay off the house - meaning, there's no obvious high-ticket problems on the immediate horizon - I'd do so right away. The reason is, back during the housing boom we refinanced our house from 230K to close to about 400K. We used it to give our son seed money for a business (which went bust)...and to buy a new house overseas and pay it off immediately. As time went on and the housing bubble burst, our house here went underwater, down to just over half what we owed on the 400K mortgage. We had to declare bankruptcy and allow it to be foreclosed, otherwise we would have been in big problems. Then we opened up a business and made good money for a few months this year...and ticked off the local elected sheriff's wife who used her connections to get us shut down and we've got a whole raft of legal problems - it's a long, long story - suffice it to say I'm about two inches from going to the local newspapers and television stations with it.

    So we went through a bankruptcy and a foreclosure, and now we're going through a serious problem with the local state government...but at any time, if we really want to, we can just say the heck with it, let it all go, and move overseas and live off my retirement. We're not eager to do that...but it's really nice to have that option.

    The point is, you yourself might not have that option for a house overseas...but having a house fully paid off is a really, really nice thing, because you never know what kind of crap this life is going to throw at you. It's nice to have that 300K easily at hand in case you need it...but that also presents a temptation for you to use it, unless you're better-disciplined with money than I am. If you pay off your house, if you absolutely must, you can always take out another mortgage...but if you can, I strongly recommend paying off the house.
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  10. #10
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    Re: Which is the smarter option?

    Quote Originally Posted by vasuderatorrent View Post
    A) Pay the mortgage company $10,000 in interest but save $3,960 in taxes

    or

    B) Pay off your mortgage and pay an additional $3,960 in taxes every year.

    Special Hint: Option A costs you $10,000. Option B costs you $3,960.
    Your mortgage gives you ownership (control) over the home (any appreciation in value is yours alone) without need to pay it off. Viewing your tax break as simply a reduction in the interest rate makes your $10K vs. $4K more like $6K vs. $4K. Also to be considered is the financial disadvantage of using your (assumed) savings to pay off a very low interest rate loan only to risk needing to later borrow money (at a much higher interest rate) for any home repairs, improvements or any other "emergency" situations.
    The reasonable man adapts himself to the world: the unreasonable one persists to adapt the world to himself.
    Therefore all progress depends on the unreasonable man. ― George Bernard Shaw, Man and Superman

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