I saw you speak at my job recently and I really enjoyed it!! I wanted your opinion on something… This may be a silly question. My husband and I are trying to pay down our mortgage. We are paying almost triple payments each month. To me, this is a good thing to do. I have had other people tell me not to do that b/c I won’t have the mortgage interest to claim on my taxes. Last year we only paid around $2,000 in interest on the mortgage and we definitely could notice it on our taxes. But do you think we are doing the right thing? Or should we be putting the extra money in savings?? I hope it’s okay for me to message you.
Thanks for your message. Great question! This week I answered your question on The Pete the Planner® Radio Show on 93 WIBC which you can listen to above, or you can see my answer here. As long as you don’t have any other consumer debt, then you are doing the right thing. The only reason you are able to write interest off on your taxes is because you pay interest. You don’t want to pay interest. Interest is bad, and a measly tax break doesn’t change that. Those other people that are telling you differently are bad at math and are wrong.
Let’s get into actual numbers to prove my point. Let’s say you make $50,000 a year and you paid $6,000 in mortgage interest. Assuming a 25% tax rate, you’ll get back $1,500 of the interest on your taxes. Fine, but if your mortgage is paid off, you never paid the $6,000 in the first place. Don’t buy into the myth that the tax break is more advantageous than paying off your mortgage.
The only other thing to consider is that the interest rate on your mortgage is probably lower than what your money could be doing in the stock market, over a long-period of time. Your retirement savings needs to grow too, so make sure you are funding your retirement, and not getting too aggressive with your house.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.