#1
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Can a mortgage be profitable?
Please help me understand why people say that having a mortgage is a better idea than paying cash for a house because you can deduct the interest and use it as a tax shelter.
My common sense is telling me that you will pay much more in interest over x years than any income tax savings the average 40-60K a year income person would have. Is this a correct assumption? If so, why is it so often repeated that buying a house is a great tax shelter? |
#2
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Re: Can a mortgage be profitable?
Did you forget to account for what you did with the rest of the cash you didn't use to buy the house in the mortgage scenario?
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#3
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Re: Can a mortgage be profitable?
OP, with mortgage rates as they currently stand, a mortgage is just about always a profitable venture.
EXAMPLE: You buy a 300k house and put 20% down. You get a 30 year fixed mortgage at 6.5%. Instead of putting the remaining $240k into the house, you invest it. Let's say you make 10% per year, 30% of which goes to taxes. You are making .5% each year. Let's assume you also get to deduct the mortgage interest you pay on your tax return. At the same 30% tax rate, your net rate on your mortgage is now 4.55%. A final benefit is that you aren't tying up all your money in a single asset. |
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