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Things That Make You Go Hmm….

Things That Make You Go Hmm…. My accountant says I need the tax break from my mortgage interest.

kirby-cotton
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Things That Make You Go Hmm….

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  1. Things That Make You Go Hmm….

  2. My accountant says I need the tax break from my mortgage interest

  3. You owe $200,000 on your home, borrowing this money at 6.00 percent. You paid roughly $12,000 in mortgage interest over the year. When you go to file your tax returns, you (generally!) won't have to pay income tax on $12,000 of your income. If you are in the 25% (taxable income between $65,100 and $131,450) tax bracket, you just "saved" roughly $3,000 in taxes. Glory, glory, hallelujah. • Does it REALLY make good financial sense to pay $12,000 out of YOUR pocket in interest to your lender to potentially save $3,000 in taxes? • Couldn’t you find SOMETHING better to do with $9,000 of YOUR money each year??? • Hmmm……….

  4. My mortgage is at 3% fixed for 30 years. That is the cheapest money I’ll ever borrow!

  5. Let’s Do the Math • $200,000 @ 3% for 30 years = $843.21/month • $843.21 x 360 months = $303,556.14 (total dollars “invested” out of YOUR pocket) • Total amount borrowed = $200,000 • What happened to the other $103,556.14? • Total dollars paid out of your pocket = $303,556.14.Commission paid to your lender = $103,556.14 • Actual percentage of interest you PAID on your “3%” loan over 30 years • Interest paid / principal paid • $103,556.14 / $200,000 = 51.8% Hmmm…..

  6. Why would I pay off a 6% mortgage when I’m earning a 12% return on my investments?

  7. $200,000 Principal Balance6% Interest Rate 30 Years$1,199.10 Monthly Payment $58,055

  8. Interest paid on a $200,000 mortgage at 6% over 5 years = $58,055 Interest earned on $500 monthly investment at 12% over 5 years = $11,243.18 Problem: Most home buyers (You’re not a home OWNER until you pay off your mortgage) don’t invest nearly as much as they pay on their mortgage $500/mo invested v $1199/mo paid We have been taught to focus strictly on the interest RATE, not on the total dollars and who benefits. Hmmm….

  9. Why do we keep our money in a checking account?

  10. $1,795.41 x 0.12% / 12 = $0.17 interest paid $6,766.68 x 12 = $81,200.16 yearly deposits Total Interest Earned YTD = $2.16

  11. Problem: The Bank Benefits More Than You….On YOUR Money! • $6,766.68 x 12 mo. = $81,192 deposited each year x 45 years = $3,653,640! • $2.16 yearly interest x 45 years = $91.80 Total Interest earned over 45 YEARS!! • Invest $3,653,640 for a $91.80 return?? • Hmm…

  12. Let’s Review • Tax Benefit: $12,000 PAID in interest v $3,000 potential saved in taxes • Make good financial sense: Yes NO • Low mortgage rate: 3% Rate Charged v 51.8% Actual Interest PAID • Make good financial sense: Yes NO • Borrow low, invest high: Pay $58,055 in mortgage interest at 6% over 5 years v earn $11,243.18 (pretax) in interest at 12% • Make good financial sense: Yes NO • “Free” checking account: Deposit $3,653,640 over 45 years for a $91.80 return (pretax!) • Make good financial sense: Yes NO Stop the Madness!!! Learning different information can lead you to DRAMATICALLY different results!

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