Cost benefit analysis - taxes

[jgenie]

I’m hoping someone here can help me set this up. We have a mortgage on our house but have enough of a cushion to pay it off and still have savings. I would like to pay it off because I hate seeing the interest we’re paying every month. Our accountant says it’s better for us to keep the mortgage because we get the tax deduction. I would like to compare our tax savings to our interest charges. How do I do that? Our interest rate is pretty low and our tax bracket is high. Anyone know where to look for a calculator or how to figure this out? Thanks!


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[westwoodmom04]

I’m hoping someone here can help me set this up. We have a mortgage on our house but have enough of a cushion to pay it off and still have savings. I would like to pay it off because I hate seeing the interest we’re paying every month. Our accountant says it’s better for us to keep the mortgage because we get the tax deduction. I would like to compare our tax savings to our interest charges. How do I do that? Our interest rate is pretty low and our tax bracket is high. Anyone know where to look for a calculator or how to figure this out? Thanks!


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Just divide your yearly interest by your marginal tax rate.

[doberbrat]

If you or someone you know have turbo tax you can run the numbers that way.

[hillview]

honestly we paid our old mortgage off and it was amazing. I think you can just go to your last tax return and see the deduction you are getting and then compare that to what you paid in interest last year. But do NOT discount the peace of mind aspect which I believe and many agree is a reasonable plan. Another example is that while you might be BETTER off with a more aggressive portfolio if it causes you stress be more conservative as the squeeze isn't worth the juice.

[georgiegirl]

Are your property taxes high? I’m pretty sure those deductions are in the sane category. We paid off lot mortgage a while ago and the taxes use up our deductions. So it’s not like we are missing a deduction

[NCGrandma]

honestly we paid our old mortgage off and it was amazing. I think you can just go to your last tax return and see the deduction you are getting and then compare that to what you paid in interest last year. But do NOT discount the peace of mind aspect which I believe and many agree is a reasonable plan. Another example is that while you might be BETTER off with a more aggressive portfolio if it causes you stress be more conservative as the squeeze isn't worth the juice.

Definitely agree that peace of mind (and just the practical benefit of one less thing to keep track of) are worth a lot. Do run the numbers for tax/interest implications but unless keeping the mortgage has dramatically greater financial advantages, strongly consider the option that you prefer.

I had an unexpected opportunity to pay off a mortgage, thanks to an inheritance. Definitely a good move!


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[dogmom]

Can you still itemize? We always itemized, but since the new tax bill limited state tax deductions to 10K it’s not worth itemizing. It’s equal to the standard defection for us we aren’t getting ANY tax benefit from our mortgage. (Right now standard defection is 24K for a couple. Our taxes went up 3% with the tax bill and will go up even more now that my eldest is 17 and we can’t get a dependably deduction on him.)

Having said that the tax deduction is NOT the only reason to keep a mortgage. If you mortgage rate is around 3-4% you might be better up keeping it. You can invest your money and even if you only earn 2% return of you factor inflation in over the years it’s a break even point. Ask yourself are you going to spend more if you aren’t paying the mortgage? Depending on the age of your kids you might want to talk to someone about college finance implications.

[klwa]

We paid ours off a few years back because I felt like you. It has changed the amount we get back in taxes, but not drastically. And, we were able to move the money being paid towards the mortgage to other things that helped with taxes. (Kids' college funds, increased contributions to Roth IRA/401K, etc.)

[gymnbomb]

We just paid ours off because the emotional benefit of it for us far outweighed anything else. We used to itemize and get a deduction for it, but now we come out ahead with the standard deduction (since tax changes, pre-mortgage payoff). We know we'll most likely move into a more expensive house in a year or two and have a whole new mortgage, but right now we are absolutely loving not having one. We're "paying ourselves" that amount each month anyway to have the money set aside for property taxes and to go toward our next house, but knowing we don't have to is worth a lot to us.

[westwoodmom04]

Are your property taxes high? I’m pretty sure those deductions are in the sane category. We paid off lot mortgage a while ago and the taxes use up our deductions. So it’s not like we are missing a deduction

Mortgage interest and state/local taxes are actually different categories of deductions.