Saturday, April 7, 2012


Money, money, money be ABBA.

My daughter wrote in her blog that she is debt free.  This is a lifestyle that we have aways tried to live.  The only things that we have bought with debt are our 2 houses.  Both of which we paid off way early.

Many people think that a home mortgage is great since it gives you a tax deduction.  If you have a mortgage you can deduct the amount of the mortgage from your income.  However, there is a standard deduction for Married Filing Jointly of $11,600.  So if you only have the mortgage plus some state/RE taxes, you only get a partial deduction or no real deduction.

Even if you can deduct the whole amount,  the tax advantage is 10-35% of the amount, e.g., if your tax rate is 25% this means you are paying 3 times the amount of the taxes to save 25% of the amount.  To me this is not good math.

One advantage that we had is that the amounts of our mortgages were much smaller than the amounts now-a-days.  However, we made less than most people do today.

Having a mortgage also can lead to foreclosure if you lose your job.

We are lucky that we are able to live debt free.  Dave Ramsey has a national radio show and other classes to teach the art of being debt free.

I am glad that my kids are able to manage money as well as they do; we must have done something right!

1 comment:

  1. Actually, you can deduct the part of the mortgage payment that is interest, not the whole payment. Early on in the life of the mortgage, the payments are almost all interest, but the proportion that is interest decreases over the term of the loan. Once you get to the point in paying off the mortgage where the amount of the payment that is interest is very small, the advantage of an early payoff disappears, because you could earn more interest by investing the money instead of using it to pay off the mortgage (assuming, of course, that you can get an anywhere decent interest rate--good luck with that these days). Of course, there's always feeling good about getting rid of the debt.