Are there disadvantages in paying off a house/condo?

[Arkitech]

Does paying off a house have any disadvantages? (increased property taxes, no home write-offs, etc.)

 

[Evadman]

ya. try finding something else where you can borrow large sums of money and have a super low interest rate. No more tax write offs for interest, etc.

 

[Arkitech]

Originally posted by: Evadman
ya. try finding something else where you can borrow large sums of money and have a super low interest rate. No more tax write offs for interest, etc.

I guess there are always equity loans, I wonder if a bank would let me carry a 20k loan for 10 years just so I can get the write-off?

 

[Rudee]

On a closed mortgage you will most likely pay a penalty for paying off the mortgage early. Still, it's worth it, obviously.

 

[AlienCraft]

Originally posted by: Arkitech

Originally posted by: Evadman
ya. try finding something else where you can borrow large sums of money and have a super low interest rate. No more tax write offs for interest, etc.

I guess there are always equity loans, I wonder if a bank would let me carry a 20k loan for 10 years just so I can get the write-off?

Well, you could always use a fully paid off home as collateral, obtain a new mortgage on a new home, move into it and rent the first one. The equity in the old home will reduce the interest rate. The purchase will give you the interest write off you seem to be "missing" and provide additional write offs in the form of Expenses Of Renting the first home.
Alternatively, you could sell that first home, move "up" and purchase a second , better (more expensive) home and continue paying the bank.
Or take that money and go LIVE it UP !!!!

 

[DaveSimmons]

Originally posted by: Evadman
ya. try finding something else where you can borrow large sums of money and have a super low interest rate. No more tax write offs for interest, etc.

If you don't need the money, why pay interest on it?

If you pay $1,000 in interest you save maybe $300-400 on taxes, so you're $600+ behind. Not smart.

Assuming you have no credit card debt, pay it off then be disciplined and keep putting you old payment into savings every month.

 

[vi edit]

You can still claim property taxes, so that's a plus. Otherwise, unless you are claiming a home office deduction for a business, I see no reason why you would want to continue the payments.

 

[Jzero]

Originally posted by: DaveSimmons

Originally posted by: Evadman
ya. try finding something else where you can borrow large sums of money and have a super low interest rate. No more tax write offs for interest, etc.

If you don't need the money, why pay interest on it?

If you pay $1,000 in interest you save maybe $300-400 on taxes, so you're $600+ behind. Not smart.

Assuming you have no credit card debt, pay it off then be disciplined and keep putting you old payment into savings every month.

If you don't "need" the money from the loan, then it is often a financially sound decision to borrow the money at such a low rate and re-invest it in a mutual fund that will likely generate more than you lose on the interest.

 

[nord1899]

Is the tax write-off that much more than the mortgage payments?

 

[DaveSimmons]

Originally posted by: Jzero

Originally posted by: DaveSimmons

Originally posted by: Evadman
ya. try finding something else where you can borrow large sums of money and have a super low interest rate. No more tax write offs for interest, etc.

If you don't need the money, why pay interest on it?

If you pay $1,000 in interest you save maybe $300-400 on taxes, so you're $600+ behind. Not smart.

Assuming you have no credit card debt, pay it off then be disciplined and keep putting you old payment into savings every month.

If you don't "need" the money from the loan, then it is often a financially sound decision to borrow the money at such a low rate and re-invest it in a mutual fund that will likely generate more than you lose on the interest.

Not over the last 3 three years. You'd be paying interest and watching your fund value plummet for most mutual funds. Borrowing to invest is a higher risk than just investing what you can afford to without borrowing.

 

[Arkitech]

hmmmm some interesting replies

I'm starting to think now that I should just pay off the loan and use the equity if I need it for my real estate investing in the event I'm hard pressed for money or collateral.

Edit: I'm not a big fan of mutual funds and money market accounts these days. I can usually turn a bigger profit with that same money by doing some smart real estate purchases.

 

[Evadman]

Originally posted by: nord1899
Is the tax write-off that much more than the mortgage payments?

no. you write off the interest on home loans. just the interest. Then you can use the money for justa botu anythign, including investments that pay off well more than the interest you are paying. and with the deduction, you are gold.

 

[Arkitech]

Originally posted by: Arkitech
hmmmm some interesting replies

I'm starting to think now that I should just pay off the loan and use the equity if I need it for my real estate investing in the event I'm hard pressed for money or collateral.

Edit: I'm not a big fan of mutual funds and money market accounts these days. I can usually turn a bigger profit with that same money by doing some smart real estate purchases.

ReEdit: On second thought are there any secure liquid mutual or market funds?

 

[ElFenix]

Originally posted by: Evadman

Originally posted by: nord1899
Is the tax write-off that much more than the mortgage payments?

no. you write off the interest on home loans. just the interest. Then you can use the money for justa botu anythign, including investments that pay off well more than the interest you are paying. and with the deduction, you are gold.

or you could take the $1000 you're saving a month by not having to service a loan and use that

 

[vi edit]

or you could take the $1000 you're saving a month by not having to service a loan and use that

That's what I'm thinking too!

 

[DaveSimmons]

Right now a good liquid place to park money is a savings + checking account at etradebank.com or savings at www.ingdirect.com, earn 1.8 - 2.25% with 0 risk (FDIC insured).

 

[nord1899]

Originally posted by: ElFenix

Originally posted by: Evadman

Originally posted by: nord1899
Is the tax write-off that much more than the mortgage payments?

no. you write off the interest on home loans. just the interest. Then you can use the money for justa botu anythign, including investments that pay off well more than the interest you are paying. and with the deduction, you are gold.

or you could take the $1000 you're saving a month by not having to service a loan and use that

See this is what I don't get. Everyone says its great to have a mortgage for the tax write off. But how could that tax write off be more than what you are paying for the loan.

I can kind of understand it for investing purposes, as you may not have a significant chunk of change to invest right away. So you get the loan, invest, get the tax write off, and pay off the loan as the investments earn money for you.

But in the option of getting a loan or having something paid off, how could the loan win out?

 

[vi edit]

See this is what I don't get. Everyone says its great to have a mortgage for the tax write off. But how could that tax write off be more than what you are paying for the loan.

Well, this is valid in two situations -

1. when choosing whether to rent or to buy
2. if you are self employed and can write off a healthy amount for home office deductions

 

[KK]

Originally posted by: nord1899

Originally posted by: ElFenix

Originally posted by: Evadman

Originally posted by: nord1899
Is the tax write-off that much more than the mortgage payments?

no. you write off the interest on home loans. just the interest. Then you can use the money for justa botu anythign, including investments that pay off well more than the interest you are paying. and with the deduction, you are gold.

or you could take the $1000 you're saving a month by not having to service a loan and use that

See this is what I don't get. Everyone says its great to have a mortgage for the tax write off. But how could that tax write off be more than what you are paying for the loan.

I can kind of understand it for investing purposes, as you may not have a significant chunk of change to invest right away. So you get the loan, invest, get the tax write off, and pay off the loan as the investments earn money for you.

But in the option of getting a loan or having something paid off, how could the loan win out?

It can't, like the others said 1000 payment 800 in interest, probably get 200-300 back come tax time. So in a year you pay 12000 total, 9600 in interest, and get back 2400-3600 from using this as a deduction. There is no reason to get a loan for the hell of it. Risks are to great to try and recoup the interest by investing it. As far as moving out of an apartment to a home, it would be a no brainer to go with the house. For one you can deduct the interest, and secondly you are investing the money in a safe place, that almost certainly will make money come time to sell.

KK

 

[Arkitech]

Originally posted by: vi_edit

See this is what I don't get. Everyone says its great to have a mortgage for the tax write off. But how could that tax write off be more than what you are paying for the loan.

Well, this is valid in two situations -

1. when choosing whether to rent or to buy
2. if you are self employed and can write off a healthy amount for home office deductions

I'm actually looking to be self-employed hopefully at the end of this year or early next year. Whats the maximum amount of write-offs I can claim from a home office? Is it like 1/3rd of the value or mortagage of the home?

 

[vi edit]

I'm actually looking to be self-employed hopefully at the end of this year or early next year. Whats the maximum amount of write-offs I can claim from a home office? Is it like 1/3rd of the value or mortagage of the home?

Everything that I've read says you claim the home office deduction one of the the following two ways

1. Percentage of house. Say you use one room of your home for your home office. Your total living space is 2000 square feet. The room you are using is 200 square feet. You are using 10% of your home for your business so you are allowed to claim 10% of the homes mortgage payment, utility payments(not counting personal phone line), property taxes, insurance, and depreciation against your income.

2. Fraction of rooms. Say you have 10 rooms in your house, and you are using one of the rooms for your business. That works out to be 10% again. 10% of all expenses can be claimed.

I don't really know the limitations of claiming other expenses - furniature, computers, ect. Of course, I'm NOT speaking as an accountant and it's in your best interest to check into this on your own as well.

 

[T2T III]

Originally posted by: vi_edit
You can still claim property taxes, so that's a plus. Otherwise, unless you are claiming a home office deduction for a business, I see no reason why you would want to continue the payments.

Yeah, but you could only write off the property taxes if the total amount of your deductions on your Schedule "A" would exceed the amount of the Standard Federal deduction. If your a married individual filing a joint return, the standard deduction for 2002 is: $7,850.

 

[Moonbeam]

Where you are better off having a loan is where you can make more interest with the money you would pay the loan off with. If you have credit card debt, as was mentioned, it's better to pay that off. If you can make more in the market, that is better, but it's not guaranteed. If you can make more in real estate use the pay off your loan money for a down payment or a cushion and insurance against vacancy if you plan to rent the next purchase. The cost of cash vs loan is the actual interest rate, not the loan rate. You have to figure in what your real interest rate is by figuring in how much, if anything, you can write off in taxes from the annual amount you pay.