Tax Deduction Ideas
November 9th, 2009
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Question: Worthwhile to go 30-year IO (interest only) just for the tax deduction?
If you had to choose between 30-year fixed at 7% and 30-year interest only at 6.5%, would you go for the interest-only mortgage solely for the tax deduction?
By the way, I have *no* idea if there even is such a thing as 30-year IO. I know of 10-year IO on 30-year period, but not an entire 30 years of just interest only.
Answer: Here we go.
You are correct that the longest IO available on the market is 10yrs long. If you are looking for just the tax deduction I would say it would be a poor choice to go with the IO. Also, IO is not negatively amortized, you are just paying interest and not principal.
Think about your options like this:
If you can afford and would like to own your property free and clear in exactly 30 years from now get the 30yr Fixed. It’s safe and eventually you will own your property.
If you think that you’re going to refinance in less than ten years it might make sense to go with the 10 year IO. With the 10 year IO you will have lower monthly payments so theoretically rather than paying that principal down you get to keep that extra money in your pocket (or your IRA). Also consider that over the course of the next 10 years your property will more than likely appreciate, right? And you’ll probably want cashout for debt consolidation, a new investment property, a new business or some other expense so you might as well leverage your money to optimize your house as an asset. Or maybe just keep low payments for 10 years and then sell.
There are lots of variables however my point is (1) don’t do anything JUST for the tax deduction and do what feels right for you. I don’t know your exact situation so I am not able to give you perfect advice but you’re on the right track.
It starts with asking good questions (you’ve got that far).
Tax deduction is a plus but more than likely for the first 3-4 years you’ll end up getting a bigger tax deduction from the 30 year F at 7% anyway.
The choice is yours.
Check out the calculators at the site below for reference.
If you have any questions I am a CA mortgage broker so feel free to ask me or another proffessional with your best interests in mind.
Items on Amazon Right Now for Tax Deduction Ideas:
@issue: Last-minute tax deduction
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