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capitalcityguy

Well-Known Member
Jun 14, 2007
8,332
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Des Moines
Phaedrus,

I listen to Bob Brinker once in awhile, but it is not his newsletter or website I was referring to. I use investools. www.investools.com

Also, I understand your reasoning with losing your job and not wanting to worry about house payments. That still wouldn't be an issue if instead of paying down your mortgage (essentially retiring cheap money that also provides a tax deduction) and instead investing that "extra" money in even modest investments, you'd still have those funds available to liquidate if you lost your job and needed to make house payments, etc. If that never happens or your emergency fund is all you end up dipping into, you are way ahead in the end.
 

dmclone

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Oct 20, 2006
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Phaedrus,

I listen to Bob Brinker once in awhile, but it is not his newsletter or website I was referring to. I use investools. www.investools.com

Also, I understand your reasoning with losing your job and not wanting to worry about house payments. That still wouldn't be an issue if instead of paying down your mortgage (essentially retiring cheap money that also provides a tax deduction) and instead investing that "extra" money in even modest investments, you'd still have those funds available to liquidate if you lost your job and needed to make house payments, etc. If that never happens or your emergency fund is all you end up dipping into, you are way ahead in the end.

I agree with what you're saying but if you're not a risk taker than you can do a lot worse than paying down debt on your house. This is especially true this year.

There are a lot of different factors to consider and it's not cut/dry for everyone. People have different interest rates, a lot of people also pay monthly mortgage insurance, how long you're going to be in the home?, etc.
 

capitalcityguy

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Jun 14, 2007
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True. Of course you need to get out from under the PMI as soon as possible if a person is paying this insurance.

It is also true, that there are worse...much worse things to do with you money than paying down your mortgage early.

My main point is people work hard for the money but then often become too conservative with it which costs them thousands of dollars over their lifetime. Also, by starting off as characterizing one as needing to be a "risk-taker" in order to invest excess funds (as opposed to one who chooses to retire cheap debt), is a false label.
 
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Cyclonepride

Thought Police
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Apr 11, 2006
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A pineapple under the sea
www.oldschoolradical.com
True. Of course you need to get out from under the PMI as soon as possible if a person is paying this insurance.

It is also true, that there are worse...much worse things to do with you money than paying down your mortgage early.

My main point is people work hard for the money but then often become too conservative with it which costs them thousands of dollars over their lifetime. Also, by starting off as characterizing one as needing to be a "risk-taker" in order to invest excess funds (as opposed to one who chooses to retire cheap debt), is a false label.
If, by paying off your house, you use your extra income for investment purposes, it would seem to me to be a net gain. Instead of paying out interest, you are using that money to make money.
 

capitalcityguy

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Jun 14, 2007
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Des Moines
It is not an even trade...not even close because you lose what is most people's largest tax deduction -- their mortgage interest.

I was a Tax Preparer in another life and believe me, it is painful to see what some people end up sending to Uncle Sam each year when the don't have mortgage interest to deduct. Also, you can't lose sight of the time value of money that you lose out on waiting to pay off your house before you start investing those funds.
 

Bobber

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Apr 12, 2006
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Hudson, Iowa
It is not an even trade...not even close because you lose what is most people's largest tax deduction -- their mortgage interest.

I was a Tax Preparer in another life and believe me, it is painful to see what some people end up sending to Uncle Sam each year when the don't have mortgage interest to deduct. Also, you can't lose sight of the time value of money that you lose out on waiting to pay off your house before you start investing those funds.

You've got some good points. My tax preparer pointed out years ago that the mortage deduction basically amounts to a reduction n the actual interest you're paying. So if you're in the 30% bracket it makes a 7% interest loan a 4.9% interest loan. If you can make more than 4.9% interest elsewhere, you should invest there.

You're still paying money out to someone however. I tend to be conservative and while I max out my 401K & Roth, I still carry some large cash balances as an emergancy fund and haven't been able to get much more then 3 or 4 % intrest on CD's for years. You pay taxes on the intersest, so instead I've just tried to pay down debt with that extra money when ever I could.

For me it felt better paying the house down instead of buying that new car or boat that some of my friends have.

So in summary, I've just tried to pay down debt as fast as possible as well as max out stock investments. I have no regrets doing that.
 

GoCy

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If, by paying off your house, you use your extra income for investment purposes, it would seem to me to be a net gain. Instead of paying out interest, you are using that money to make money.

This is the mantra of Dave Ramsey. My wife started listening to him and read his books, and I like his strategy for building a very strong financial foundation. His belief is to be debt free, and I bet there are alot of homeowners with adjustable rate mortgages who wish they were right now.

As for the concept of having a mortgage simply to get a tax break, that is a joke. You only get a deduction on interest payments. Therefore if you are in the 25% tax bracket, you first have to dump $1000 down the rat hole to get $250 back. I would rather keep the $1000 in my pocket, and get nothing back from the government.

We were interviewing a realtor to be our realtor when we bought our first house, and she advised us to buy the most expensive house the bank would loan us, because it was important to get the most tax deduction we could. We immediately walked out of the room.
 

jmb

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It is not an even trade...not even close because you lose what is most people's largest tax deduction -- their mortgage interest.

I was a Tax Preparer in another life and believe me, it is painful to see what some people end up sending to Uncle Sam each year when the don't have mortgage interest to deduct. Also, you can't lose sight of the time value of money that you lose out on waiting to pay off your house before you start investing those funds.
Holy crap!!! This has to be some of the worst advice I have ever read!!! Are you seriously trying to say that a mortgage interest deduction is a mathmatical win? If so can we meet and you give me a $1 and I will give you .28 in return, and can we repeat this for hours. Because if you don't want to engage in that business why would one want to carry a mortgage if they don't have to? Why do banks engage in lending? Because it is a profit center for them.

No debt is good debt. If one must have debt than structure it so that it is tax advantaged, or go towards something that generates income i.e. an education, business, etc.

No matter how you slice it, a house payment simply for the mortgage interest deduction is ignorant.
 
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Wesley

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Apr 12, 2006
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Do not buy financials till next year...


The itemized deduction versus standard deduction break point also needs to be taken into account when deciding on mortgae tax break. It takes a few dollars of interest to get to the point of itemizing...
 
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CYdTracked

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Mar 23, 2006
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Grimes, IA
For liquid savings accounts might want to look into 1 of these: Top 50 Money Market Rates & High Interest Savings Accounts The sad thing is late last fall I signed up for an account that was earning 5.65% and is down to 3.55% now because of the falling interest rates but still you can't go to the bank and get that rate most likely.

Bank Iowa Banks | Welcome has a 5.5% checking account but there are requirements to get that rate. At least 10 debit transactions and 1 auto deposit or auto pay a month. Not a bad deal at all but I use my CC mostly because I like to pay most of my bills all at once and earn what interest I can on my liquid funds.

Lastly, I use this place for my long term investing: Foster Group, Inc. Financial Planning and Asset Management They charge a very minimal fee, I think a fraction of a percent or something of your account balance to manage your investments. They'll even look over your 401K and give you advice on how to manage that as well. They started very small and still maintain that "small town" business feel as they just hire more staff to keep up with the growing client base while not losing their high level of customer service and personal attention. Plus they usually put on free events like I-Cubs, Barnstormers, Hockey, and Energy games that you can get free tickets to and they usually provide a free meal or something beforehand too. Also a VERY nice and free client appreciation banquet once a year, usually at the Des Moines Golf and country club but I think they have got so big now they had to move locations last year because the country club wasn't big enough to hold it any more. I'd definitely recommend these folks if you are looking for someone to manage your stock portfolio and investments, they are very good at diversifying that when the stock market takes a hit your account doesn't feel it as much because of all the foriegn markets they invest in will even it out.
 

jmb

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For liquid savings accounts might want to look into 1 of these: Top 50 Money Market Rates & High Interest Savings Accounts The sad thing is late last fall I signed up for an account that was earning 5.65% and is down to 3.55% now because of the falling interest rates but still you can't go to the bank and get that rate most likely.

Bank Iowa Banks | Welcome has a 5.5% checking account but there are requirements to get that rate. At least 10 debit transactions and 1 auto deposit or auto pay a month. Not a bad deal at all but I use my CC mostly because I like to pay most of my bills all at once and earn what interest I can on my liquid funds.

Lastly, I use this place for my long term investing: Foster Group, Inc. Financial Planning and Asset Management They charge a very minimal fee, I think a fraction of a percent or something of your account balance to manage your investments. They'll even look over your 401K and give you advice on how to manage that as well. They started very small and still maintain that "small town" business feel as they just hire more staff to keep up with the growing client base while not losing their high level of customer service and personal attention. Plus they usually put on free events like I-Cubs, Barnstormers, Hockey, and Energy games that you can get free tickets to and they usually provide a free meal or something beforehand too. Also a VERY nice and free client appreciation banquet once a year, usually at the Des Moines Golf and country club but I think they have got so big now they had to move locations last year because the country club wasn't big enough to hold it any more. I'd definitely recommend these folks if you are looking for someone to manage your stock portfolio and investments, they are very good at diversifying that when the stock market takes a hit your account doesn't feel it as much because of all the foriegn markets they invest in will even it out.
Those boys are good at this business. They do have a rather large account minimum.
 

capitalcityguy

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Jun 14, 2007
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Des Moines
Holy crap!!! This has to be some of the worst advice I have ever read!!! Are you seriously trying to say that a mortgage interest deduction is a mathmatical win? If so can we meet and you give me a $1 and I will give you .28 in return, and can we repeat this for hours. Because if you don't want to engage in that business why would one want to carry a mortgage if they don't have to? Why do banks engage in lending? Because it is a profit center for them.

No debt is good debt. If one must have debt than structure it so that it is tax advantaged, or go towards something that generates income i.e. an education, business, etc.

No matter how you slice it, a house payment simply for the mortgage interest deduction is ignorant.

Wow...everyone out here was respecting each other's POV's...and then you came along.

Who said the sole purpose was for mortgage interest deduct? That was just one piece of the equation. The main reason is that a person can very likely make their money work earning a higher return than what they are paying out in mortgage interest. The bonus ON TOP OF THAT is the tax deduction.

You're obviously not the type of person that is open to hearing others thoughts, so I'm not going to start going back-and-forth with you on this. The bottomline is (and if you'd do some reading, you'd find this out yourself -- you act like I've introduced some new, foreign concept here) most personal financial experts would agree with my take on this (although as one person pointed out, Ramsey does not).
 

jmb

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Wow...everyone out here was respecting each other's POV's...and then you came along.

Who said the sole purpose was for mortgage interest deduct? That was just one piece of the equation. The main reason is that a person can very likely make their money work earning a higher return than what they are paying out in mortgage interest. The bonus ON TOP OF THAT is the tax deduction.

You're obviously not the type of person that is open to hearing others thoughts, so I'm not going to start going back-and-forth with you on this. The bottomline is (and if you'd do some reading, you'd find this out yourself -- you act like I've introduced some new, foreign concept here) most personal financial experts would agree with my take on this (although as one person pointed out, Ramsey does not).
edited after re-reading.

I have a master's degree specifically in financial planning, and I just simply don't buy the mortgage interest deduction arguement.
 
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wartknight

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Mar 24, 2006
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I happen to have a master's degree in financial planning, and while i would love to argue with a "tax preparer" about the virtue of mortgage interest deductions, I think that I will refrain from beating my head against a wall.

Keep servicing debt I encourage you to do so.
You are looking at this from a very micro point of view. He is not saying the only reason to have a mortgage is for the deduction.
 
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jmb

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You are looking at this from a very micro point of view. He is not saying the only reason to have a mortgage is for the deduction.

fair enough.

I must have misinterpreted what he wrote.
 

Phaedrus

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Jan 13, 2008
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You are looking at this from a very micro point of view. He is not saying the only reason to have a mortgage is for the deduction.

But, in the end, would you take out a loan on your house to invest?

I sure as hell wouldn't, but that's what you're doing, when you stretch out paying off your house so you can "free up" money to invest.

Personally, I'm doing both. I've self-converted my 30 year into a 15 year mortgage through paying down the principal, while investing 15% of my income.

Plus, if I have a surplus, I throw it at the house. I plan on having a rock solid foundation to build my financial future on.

And I swear, the less I owe on my house, the better the grass feels between my toes.
 

wartknight

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Mar 24, 2006
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But, in the end, would you take out a loan on your house to invest?

I sure as hell wouldn't, but that's what you're doing, when you stretch out paying off your house so you can "free up" money to invest.

Personally, I'm doing both. I've self-converted my 30 year into a 15 year mortgage through paying down the principal, while investing 15% of my income.

Plus, if I have a surplus, I throw it at the house. I plan on having a rock solid foundation to build my financial future on.

And I swear, the less I owe on my house, the better the grass feels between my toes.
There's nothing that will replace how you feel about having your house paid off, and I'm all for it, I just want people to do it the most effective and efficient way possible.
I actually could make a very good argument for taking a loan out on your house to "invest" the money. I'd never make that my recommendation to someone, but if someone was interested and open-minded,I could easily show them how it was better for them. Maybe not from an emotional point of view, but using cold, hard numbers.
 

djkent01

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Feb 21, 2008
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I'm impressed by these comments. I get asked this very question all the time as a CPA. There's not a pat answer, but in MOST cases the interest deduction is not a reason to maintain a mortgage and is not a good reason to use the money for investment. As Wesley pointed out, everybody gets a standard deduction - which will be $10,900 in 2008 for joint filers. Say you have a total of $30K in deductions - you're really only going to get the benefit of 2/3 of that which effectively cuts the tax benefit by 1/3.

However, at a previous firm I did have individuals that used home equity to invest and did very well by it - but they were professional investors (and I got lots of grest tips from them, I miss those guys). But as a rule, if you have the liquidity you need, IMO pay down non-tax benefit debt, and then the mortgage. THEN start investing.
 
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