[jackdaniels]

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I'm a fan of paying off the mortgage. A guaranteed return of 6% is better than you can expect given average market returns (8%-12% MINUS taxes). It is a no headache way of getting an immediate return on your monies.


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It is easy to assume that the OP is in the highest tax bracket and is using his interest as an itemized deduction. Including his State tax his 6% savings is reduced to less than a 3.5% savings. No doubt he should put his money in the stock market.

Jimbo

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I keep forgetting you guys can deduct the interest you are paying on your primary residence (no such luxury in Canada). While this makes the case better for mainatining that debt, how is it different from the scenario I described where he has a fully paid off home, and takes a $150,000 loan at 6% to invest in the market? I don't see how these situations differ and they directly relate to the level of risk one is willing to take in the market.

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It differs because the interest on the 6% loan you suggest to be used to buy stocks is not tax deductible wheras the 6% interest portion of his loan on his home is, effectively making the loan you suggest be an 8.5% loan instead of a 6% loan.

Jimbo

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OK, this I didn't know. Canadian rules state that you can deduct the interest on any loan made for "investment purposes" - excluding the mortage on your principal residence (though you also don't face cap gains when you sell). So in the US you can't borrow money to invest and deduct the interest but you can deduct the interest on your principal residence. Understood. In that case, OP would definitely benefit more by keeping the tax deductible mortgage payment and investing the 150k.

Thanks for clearing it up.