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Originally Posted by taking charge
...and don't forget, if you are in a 20% tax bracket say, and you pay $5,000 in interest, that your tax deduction is only $1,000. - So you are paying an extra $4,000 still in interest.
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You are correct in your math, but your tax deduction is only possible if you itemize. Many people I know are so close to the cutoff of itemizing with current mortgage rates of less than 6% that they falsely believe they are recouping 15%- 20% of that interest bill when actually it is more only 3% is deducted.
A $1,000 CD at 5.5% for 15 years will only net you $2281 - $1000=$1281 profit minus interest income taxes. The same $1,000 paid on a $150,000 15yr mortgage@ 5.75% will save you 1 2/3 payments over the life of the loan or approximately $1200 (minus interest deduction) in interest if done in the first year, each year you wait the benefit reduces but so does the profit on the CD to almost break even in this scenario.
You just have to decide if you want the money tied up in a CD or principal, is the interest on your mortgage actually deducted on your taxes?
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Originally Posted by taking charge
Like I have said to people in the past that knew I was paying down my mortgage, do I really hate the government that much that I will pay so much extra interest to save a fraction of that on taxes. I don't think so.
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So true!
Its addition by subtraction.