If you could, should you buy your next home with cash, or take out a mortgage loan?
The answer seems pretty simple and obvious, if you think about it.
The interest deduction on first (and second) home mortgage loans will help you out, but only by your income tax bracket (meaning if you pay $20,000 in interest in your first year, and you’re in the 28% income tax bracket, you’ll only be saving $5,600 (actually a bit more, but let’s just call it even).
There’s more to be concerned about, though:
Author Eric Tyson says it could make sense to borrow instead of using cash if the borrower could invest the cash so the return on the investment would be greater than the cost of the interest.
“The question you have to ask yourself is: Does the after-tax return on the investment exceed the after-tax cost of the mortgage?” Mr. Tyson said.
As important, you need to make sure you leave enough money set aside for emergencies, right?
Pay Cash or Get a Mortgage? – By Jay Romano, The New York Times