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Making Extra Payments |
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Dear Ms. Lank: This is in regard to making extra payments on my mortgage. My car is paid off and I pay off my credit card monthly if I use it. I have a $10,000 CD and about $15,000 in a savings account.
Inasmuch as I bought my house about one year ago with a 30-year mortgage, I thought making an additional payment would be advantageous, as the house would be paid off shortly after I retire. However, I am told this is not a good idea because of losing the tax write off. Could you please give me your opinion? |
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You don’t mention retirement accounts, but I assume you’re funding those as much as you can. Beyond that:
If you have a 6 percent mortgage, sending in extra money to pay it down more quickly gives you the same return as if you were earning 6 percent interest with that money. I’ll bet that’s a lot more than the interest is earns in your bank account. Whoever told you to keep the mortgage so you’d get a tax deduction was on the wrong track. It’s not worth spending a dollar in mortgage expense just to get back a 28-cent deduction on your federal income tax. And if you just leave the money in the bank, you will owe tax on whatever it is earning. The tax aspect of the decision isn’t worth considering. Just take my word for it.. The best return for extra money, of course, is in paying down expensive credit balances or car loans, but it’s clear you don’t have those. My only concern is that you may not have quite enough where it could be easily tapped for living expenses in case of an emergency. You might want to beef up your CD or savings account before you start paying down the mortgage. |
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Edith
Originally published on October 6, 2006 |
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