An Overrated Tax Strategy: The Home Mortgage Interest Deduction

The mortgage interest tax deduction just might be the most overrated tax economy strategy there is, and yet it is considered by many to be a primary ground for home ownership.

Look, I show financial seminars for thousands of people every year. During interruptions people will invariably come up up to me and inquire me oppugns about their personal financial situation. I state them to make five basic things…

Get out of debt and remain out of debt.

Save 3-6 calendar months of disbursals for emergencies and emergencies only.

Use the envelope budgeting system. It's the best budgeting system ever developed.

Open a Philip Roth individual retirement account so that you can have got tax-free investments and tax-free income for the remainder of your life.

Pay off your mortgage so that you can have a home free and clear.

The 1 that always rans into with the most opposition is the 1 about paying off a mortgage. People will often say, "I don't desire to pay off my mortgage because I need the tax deduction."

That sort of logic gives me a headache. Here's the deal: If you pay $1,000 a calendar calendar month in interest on your mortgage, and if you're in the 28% tax bracket, you will still pay $720 a month in interest ($1,000 subtraction 28%). So it's only a good deal compared to not getting any tax tax deduction at all or -- in many cases -- paying rent. A mortgage interest tax deduction makes not "save" you money over not paying any interest at all.

In my full career I've never heard anyone who owned a home free and clear say, "Gosh, I sure lose having that mortgage payment." So once you've establish a home that you desire to dwell in for the remainder of your life, work toward paying off your mortgage early. You'll be glad you did.

(c) Larry Holmes