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Should I Pay Off My Mortgage?

Question: I am tempted to pay the $300,000 balance on my mortgage and live debt-free. How do I estimate the tax benefit of the interest paid on the mortgage?

– Gaurav Aggarwal, Andover, Mass.

Answer: “Live debt-free” sure has a nice ring to it. Estimating the tax benefit involves just a few simple calculations and a little help from an online calculator, like the one on The key question to ask: Is what you expect to earn by investing the money likely to be greater than the cost of the mortgage, after the tax benefit? If so, it may make sense to keep it invested, says Lynn Mayabb, a Kansas City, Mo.- based financial planner with BKD Wealth Advisors. And while they’re uncommon these days, some prepayment penalties do exist, so be sure to check your mortgage contract.

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    • The way to make this work is for you to buy a 2 or 3 or 4 flat and live in the building. Otherwise it won’t work. Frequently after 4 units, even if owner oceuipcd, you make the higher down payment and pay the higher interest rate, but check around with lenders. You need larger down payment for investment, non-owner oceuipcd dwellings. It’s harder to get loans, there is higher down payment and higher interest rate when not owner oceuipcd. Banks only count 65% of rental income as there could be vacancies.FYI: Knowitall, There are wrap mortgages that cover more than one property, but doubt he could get one as a novice real estate investor.

    • You come out ahead even with the taxes:
      You save whatever your tax rate is of the interest only, so if you paid $1000 in interest you saved $250 on your taxes.
      With the same $1000 you will pay $250 in taxes, but keep $750.
      In other words the savings is 3X the tax advantage, you traded 250 for 750.

    • In my opinion, there is no such thing as good debt. Debt is debt. A lump sum of 300K is alot to pay, but how fast can the mortgage be paid with extra tacked onto the current mortgage payment. I’d go the route of paying extra on the mortgage so that it can be paid of faster.

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