Quote:
Originally Posted by tc-sacto
Why would one pay down the mortgage? If he is in the 25% tax bracket, his true cost of interest is 6.25%-25%tax = 4.68%. Certainly you can invest the money at an after-tax rate of greater than that.
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The numbers are rarely as simple as you portray. As was pointed out earlier, how much of the mortgage interest deduction is eliminated by the standard deduction? On a $180k mortgage, the yearly interest would be roughly equal to the standard deduction. If Kurt V does not itemize deductions, his tax savings is nil.
Let's propose that Kurt V does get a full deduction on income taxes (total deductions of at least $21K+). A return of 4.68% is essentially a risk-free return, a 10 yr treasury bond. Add the liquidity of a HELOC, and it isn't a horrible investment. Is it the best investment? We lack the information to answer that question.