I know people who took 15 year mortgages to make sure they’d have the flexibility to leave their 9 to 5 job when the mortgage was paid off.

And over the long term, residential real estate has only returned 1.5% in real terms.

One thing to consider is that property tax is not capped in most jurisdictions.

Even here in flyover country the tax assessed value of the large house where I grew up is 10x what it was 25 years ago – current property taxes of $1200/month – I don’t think most people’s income has increased the same.

Let’s take a married couple. Standard deduction is $5350 for a single, $10,700 for a couple. Let’s say combined income for the couple is $70,000 in a state with a 6% income tax. That’s $4200 of deduction to which we’ll add $3000 of property tax for a total of $7200. So the difference between $10,700 and $7200 or $3500 of mortgage interest really isn’t deducted at all, only that portion of mortgage that exceeds $3500.

Perhaps your situation is different. Yes, you may “top the standard deduction”. But really, how much of your mortgage interest that you pay exceeds the standard deduction? Or stated another way, after you fill out schedule B, does the amount by which your deduction exceeds the standard deduction also exceed your mortgage interest?

Some of you will be able to answer the question as “Yes”. But if not, then part of your mortgage interest really wasn’t deducted.

So Kevin, do your schedule B deductions ignoring mortgage interest exceed your standard deduction?
To anyone else, same question.

No Mortgage=No Risk=No interest payments=you work for yourself not the bank.

Debt is never good. It’s enslavement. There is no true advantage to keeping debt.

I tend to look at most life matters as simply as possible. We took a 15-year mortgage because we could foresee paying it off one day. I just couldn’t imagine ever paying off a 30-year loan. People do, I’m sure. It just seems too long to pay off anything.

First most people do not already meet the standard deduction threshold. Unless you already have >$5,150 in deductions as a single or double that if married, Trent’s analysis is worth what you paid for it.

Even in the best case, do you really think its good math to send the bank $10,000 so you don’t have to send the government $2,800? I’d rather send the government the $2,800 and keep $7200 for myself to invest.

I do deduct some of my interest but that’s only because I also deduct charitable contributions. If I didn’t, I wouldn’t have enough to exceed the standard deduction.

That said, it’s also true that the amount of interest looks very different at the end of your mortgage than at the beginning. Even the amount of principal plus interest (P&I) looks very different. When I first bought my house 11 years ago, my monthly payments were just over $600, and just over $500 of that was P&I (mostly interest). Now my payment is $800 per month, and of course P&I is still $500 (over half is now pricipal).

By the time my house is paid off, my taxes and insurance (not to mention maintenance costs) might be just as high as my P&I was. Still, it’s nice to a) quit having to pay out $500 of that money per month and b) not have to pay how much it would cost to rent such a place (currently $900-1200/month where I am).

(Note: obviously I do not live anywhere crazy expensive. Also, my house was about 2/3 the price of the average house at the time I bought it because it’s small.)

(Full disclosure: I started with a 30-year mortgage because it was all I could officially afford. Two years later I refinanced to a 15-year mortgage with lower interest. Another advantage was that since I had been paying extra each month, I had enough equity to significantly reduce my mortgage insurance payment each month as well. I admit that the mortgage rate spread between 15- and 30-year loans was only 0.25% at the time. I am definitely biased to want this house paid off ASAP but am not allowing myself to send in extra payments because I know I can make more via other investments.

Also, if I wait until the house is paid off to invest in the stock market (other than in retirement accounts), then I am reducing the span of time during which I will be invested and thus increasing my risk. I am extremely risk averse but do feel that investing in the market is the best hedge against inflation. Well, inflation-indexed bonds used to be pretty good as well, but I only got a few I-bonds back when they were 3% + inflation and now the deal isn’t that great.)

It all comes down to Risk.

Being Debt Free, removes a lot of risk from the equation.

If you live your life without a 30 year burden over your head, you will have more capability to take advantage of opportunities as they arise.

If every day has a 30 year obligation hanging over me, I am less agile financially.

1) Give money to charity, and deduct it

or

2) Give money to the bank and deduct it

There is a whole lot more good coming out of giving that money to a charity.

The decisions we make with our money affect more than just our own lives. Many people justify too much house, too much interest by saying it is deductable, like they are going to get it all back.

You need to redo your calculations to get them more on an even footing.

Include the gains from 15 years of mortgage payments being invested.

Also you incorrectly assume that someone will always be getting the tax deduction for the interest they pay. First you would have to exceed the standard deduction, which is currently going up ever 1-2 years. Then your income has to be 1 earner (or low). Then you would have to be dumb enough to give away a dollar to get 30 cents back and be happy about it. That’s what interest is.

Also the debate varies significantly based on the interest rates. When I bought my home 4 years ago, I got 4.75% for 15 year, while 30 year was 5.75%. If the rates are closer, there are less differences of course.

I honestly like the idea of having my house paid off before I have kids in college, since I don’t have kids yet. The ease of financial burden is priceless to me.

What proportion of mortgage interest can you actually deduct, assuming you have a household income of, say, between $43,000 and maybe around $60,000?

I would characterize the Ramseyites position as being that most people won’t invest the difference in monthly payments systematically. Personal finance is complicated with taxes, but it gets even more complicated when you factor in human psychology. IMHO the most important part of being debt free is that increases the “pain” of spending and therein reduces consumption.

Furthermore, if you look at the situation after only 15 years, the 30-year guy will have saved up more than the payoff on the home. So, if he wanted to, the 30-year guy could pay off the house after 15 years (with a lump-sum check) and still have a few thousand left over! Of course, this is assuming the rate of return on investments is higher than the interest rate on the mortgage.

This is the problem with the Dave Ramseyites and their “Debt Free” mantra. Would you rather be “debt-free”, or have a positive net worth? I.e. you have enough in liquid assets to pay off any debts that you have? Would you honestly feel THAT much better off with $0 debt and $0 in savings, than being $100k in debt while also having $110k in the bank? Logically you are better off under the second scenario, but it seems that many people have an emotional fear of debt that makes them choose the first scenario.

As far as inflation, just remember: inflation ALWAYS favors the debtor. If you are predicting high inflation, then get into as much fixed-rate, long-term debt as you can. The amount that you owe, in real terms, will diminish every year.