Ramsey covered the ins and outs (his ways) of buying and selling real estate. He approaches all of it like either a retailer or investor. There were some good tips but they were not relevant to my present situation because I am not planning to sell or buy a home right now.
As far as mortgages go, Ramsey strips away all consideration for any type of mortgage other than a conventional 15 year fixed. Also, payments should be no more than 25% of your income. Again, this session contained good information that can be tucked away for future use.
I did really appreciate one part of the session as it attacks a widespread myth.
Why keeping your mortgage for a tax deduction is a bad idea.
Baby step 7 is Pay off Mortgage early. What's the first thing that comes to your mind when thinking about this step? What about the tax deduction? The benefit of keeping a mortgage just to get a tax deduction is a myth - the math does not add up. Yet, financial professionals advice against paying off your mortgage early all the time (I was one of them.) Yes, there is a tax deduction for mortgage interest if you itemize but what does it really mean. Here is an example of the bad math:
- You have a mortgage of $200,000 at an interest rate of 5%. So, each year you are paying the bank $10,000 in interest.
- At tax time you would get to deduct $10,000 from your adjusted income. Depending on your tax bracket, you are only saving a percentage of this amount.
- Let's say you are in the 25% tax bracket. You would then be saving 25% of $10,000 - or $2,500.
- You sent $10,000 to the bank so that you wouldn't have to send $2,500 to the government?
- The math does not work. It doesn't make sense.
- You can get the same tax deduction by making a charitable donation instead.
No comments:
Post a Comment