Hello everyone,
This is an exciting time! It’s my honor to be able to share this with you here today, the post below is a small excerpt from my upcoming book. I have a short one today. But this is a good post to read, sit and think about. For those of you who don’t know, I am a debt free advocate. I saved for six years and paid cash for my home and I have no other debts of any kind. I subscribe to many financial blogs and Facebook groups that talk about money. And there doesn’t seem to be a common consensus about whether one should pay off their home or keep the mortgage for the tax credit at the end of the year. A common question I hear is, “If I don’t have a home loan won’t I be missing out on an awesome tax deduction?” Below is my response…
Let’s assume that you make $60,000 a year and you have a $10,000 tax write-off from your mortgage interest home loan, that means you pay taxes on $50,000. If you don’t have a mortgage, you would have to pay taxes on your full income of $60,000. Since you’re in a 25% tax bracket. Twenty-five percent of $10,000 is $2,500. Your tax bill just went up by $2,500 because you don’t have a mortgage. However, you are no longer wasting $10,000 on mortgage interest! Your tax bill went up by $2,500, but you saved $10,000. Which means you have a net savings of $7,500. That is, a savings of $7,500 every year. As demonstrated in my book, If you were to just invest those savings alone, it would accumulate into a nice retirement nest egg. So let’s add a visual just to help put this into perspective.
Looking at Figure 1, the mortgage deduction tax savings alone in the blue, is how much money you would save by having a mortgage deduction. The total amount saved is $75,000. Not bad. However, by not having a mortgage and not paying mortgage interest, you are able to save $7500 per year in my previous example. Simply by saving this $7500 per year in a savings account, you will triple you’re earning putting you at $225,000 shown in the orange. But it gets better! Shown in the Green, If you take these savings each year and invest it in a conservative mutual fund earning 8% ROI, you are able to get a return of $925,094.
Questions
- Will this strategy work for your situation?
- What am I missing here?
- Do you think this money can be better held somewhere else?
- Are the numbers I used realistic?
If you would like to see more of these examples and get notified of my official book release, sign up for the mailing list here. I will be posting more freebies in the coming weeks. You don’t want to miss out. Thanks for reading!
Says Joe Cole 