A big mortgage plus small down payment equals tax advantages?
If you are like most investors you will finance most, if not all of the purchase price for your home. Once you move in, the home ownership honeymoon is over, you will probably get the urge to speed up your payments and get out debt as soon as possible. But, should you deplete your cash reserves and increase your mortgage payments to pay off the loans?
Are you comfortable with a large debt?
The answer depends on your comfortable level with such a large debt and your tax situation. Your annual mortgage interest payments and property taxes are tax deductible.
Depending on your income and the value of your home, you are probably looking at deductions of a few hundred to a few thousand dollars off your taxes. Once these deductions are schedule, you lower the amount of your real income, can end up in a lower tax bracket and pay less tax.
Mortgage interest deductions lower your tax bill
The compound effect of lowering your tax bill over a 15-year or 30-year time span cannot be overstated. If you feel tempted to pay down you mortgage earlier remember that you can use the cash you have on hand to invest in other resources such building up your own business and the stock market.
Use deductions to build up wealth
Don't get too concerned with your annual mortgage payments because your house will automatically increase in value every year.
You can use the extra cash to invest in a tax deferred retirement account and secure a better financial future for your family. If you think about it, owning a home is like setting up an automatic savings plan. Use that to your advantage instead of pushing yourself to the financial brink to pay off your mortgage.
Take advantage of the tax benefits of financing your home and make your money work for you.
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