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15yr vs 30yr

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Not_the_Point
Regular Contributor

Re: 15yr vs 30yr

It's my understanding that only the interest you pay on a mortgage is tax deductable. Wouldnt you also be getting more of a tax deduction with a 30 year mortage? Was I mis-informed on that?


8/27/10 -
TU FICO 768
EQ FICO 763
EX PLUS 732

Message 11 of 14
Watchmann
Valued Contributor

Re: 15yr vs 30yr


@Not_the_Point wrote:

It's my understanding that only the interest you pay on a mortgage is tax deductable. Wouldnt you also be getting more of a tax deduction with a 30 year mortage? Was I mis-informed on that?


 

Don't fall into the trap of thinking that paying more interest is to your benefit because of the tax deductibility of it.  Yes, you get more of a tax deduction, but at a very expensive price.  The total interest payments on a $200,000, 30 year loan at 6.25% is $243,316.  The corresponding interest on a 6.00%, 15 year loan is $103,788.  Assuming your marginal tax bracket is 25% that means you get 25% back and you lose 75% of every months interest charge.  Poof, down the drain, never to be recovered.  Completely dead money given to your mortgage company.  That's a waste of money, imo.  That means over the life of the loan your added cost is ($243k - $104k) x 75% = $106k.  (not taking into account the time value of money).  I don't like to throw that kind of money around.

 

Never pay interest just to get a tax deduction.  That's faulty thinking.  It's a selling point of the real estate industry, but it is NOT to the buyers advantage. 

Message 12 of 14
Not_the_Point
Regular Contributor

Re: 15yr vs 30yr

It's good to see a concrete example to really gauge what the cost/benefit of the tax deduction is. Very insightfull stuff, Thank You!

8/27/10 -
TU FICO 768
EQ FICO 763
EX PLUS 732

Message 13 of 14
Anonymous
Not applicable

Re: 15yr vs 30yr

It is an obvious answer which is better long term financially 30 or 25 yr fxd.  better rate and loess interest paid wins.  That said, you need to look at you next 15 years and determine what you expect to be doing.  You could save a good portion of the money by doing a 30 year, paying bi-weekly and adding an extra payment 1x per year.  That would still leave you with extra cash free each month if needed with little notice on your part.  It comes down to what your personal financial sitauation is.  Do you need to think about any other large purchases down the road.  Is your job/income very stable?  Do you have kids that may need college help in a couple years, etc. Getting a 30 year to save taxes is stupid.  Getting a 30 year to get the place you really want and still be able to live comfortably and have a cushion (especially if you can figure out how to pay off quicker) definitely has it's places. 
Message 14 of 14
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