Did I really say that? Do you know anyone who owns their home without debt against it? Doesn’t that mean there will be nothing to write off if I don’t have a mortgage? Would you dare to dream that your most important place could belong to you?
We have become a debt driven society. Even those of us on the older end hardly remember a time when credit wasn’t readily available and you had to “save up.” I remember my first credit card came from a local department store that is long since gone out of business. What a thrill with only a part time college job to get a card! Somehow it was a rite of passage to adulting. My first car loan came with a whopping 18% interest rate and at the time, that was cheap! Later, becoming a homeowner, learning the mortgage business, the common thought was that everyone has a mortgage and it gives you a tax break. While this is true, it beats renting on many levels, it also will keep you in debt for 30 years or more. This will be longer if you buy a house then trade up or move any number of times and keep refinancing the mortgage starting over at 30 years each time. It’s a perpetual debt cycle.
Is it reasonable to ever own a home without a debt on it? For the folks that stay in their home for the 30 years and never refinance, kind of like my parents did this works fine. Most of us are lured by the shiny object of a lower rate that promises a lower payment and therefore more money to spend under the guise of “saving money.” Or we move, trade up, downsize, transfer jobs and each time most people start over with a new 30 year mortgage. It is commonplace that everyone has a house payment or rent.
The Write Off Myth
If you’re a renter – writing off mortgage interest will definitely be an advantage over renting. Additionally, you will not face rent increases (just property taxes) and hopefully will gain an equity since real estate tends to appreciate more than decline over time.
Here is the challenge. At what point should you realize that the rent advantage could work further in your favor by taking the extra amount you might have of a rent increase each year – $25 a month and throwing it on your mortgage to pay it down? This takes the term of the loan to less than the 30 year debt sentence. If you make one extra payment a year, this removes 7 years and 8 months off of the debt. There are also now options for shorter term loans, i.e. 28 years, 22 etc. Something for consideration should you be getting a new mortgage any time soon.
What about that write off? Do two calculations: Amount of mortgage payments you pay in a year + amount of taxes paid in the same year. Compare to no mortgage + total of taxes. Which is less? Yes, taxes are higher without write off but guess what – you still have more money in your pocket! Hint – There are other tax shelters besides your home that won’t jeopardize the four walls and a roof that protect you and your family should times get tough. Talk to a financial planner or tax advisor to learn more.
Confused? If you don’t have a plan that is meaningful, talk with your financial advisor and be clear of your goals. This will help you when that new home or remodel calls your name or the lure of yet another refinance shows up.
My role as a mortgage broker is to help you meet your goals, whatever they are. I’m always happy to talk through questions as you work on creating a plan to connect with your dreams. Let me know how I can help!
Have helped buyers of all types and financial levels and worked on 1000's of loans.
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