UK Home Mortgage Guy

Actually, the interest paid is included in the calculations.

Some key points that are worth mentioning here:

1) When interest rates go higher, typically so does rate of return in the market. So it is more accurate to say that as long as the relationship between the mortgage and the return in the market maintain a positive relationship, mortgages are better not paid off.

2) Safety is a huge factor. However the issue of safety can be counterintuitive. If you lost your home in Katrina and you had paid off your mortgage, paying off your home was actually a liability. If you had instead kept an interest only mortgage and paid the difference between interest and principle into a side account the bank would have been in the risky position.

3) Liquidity is usually desired at a time when it is least accessible. If you lose your job, it is very difficult to access the equity in your home. However, if you pay only interest into a loan and keep the principle payments as stated in #2, you are in a stronger position to weather storms.

4) What we at our company, Mortgage Coach software (we provide tools to Loan Professionals), advocate is seeking a freedom point. A point at which your assets and equity exceen your debt.

5) For some individuals, the discipline of saving into a side account is not acheivable. If they free up cashflow they will likely spend it. For these individuals it is safe to say that paying off their mortgage might be the best choice to forced savings. There are other ways to accomplish the same result, but for certain parts of the homeowner population, this is really the best way to go.

This is really a timely topic. I believe that one of the best authorities in this are is a gentleman named Todd Ballenger. http://toddballenger.typepad.com/.

He wrote Borrow Smart, Retire Rich… an incredible book for consumers and financial professionals alike.

You said, “The AMT sucks, doesn’t it? Why the hell they set it up and then didn’t index it for inflation is beyond me.”

I hold politicians responsible even for the unintended consequences of legislation. But in this case, I can’t even assume it was unintended. Inflation is an increase in the money supply relative to the supply of things that money can purchase. Increases in prices and wages are a downstream consquence of that. The money supply in controlled by the folks with the printing presses and control over key interest rates. Milton Friedman established that decades ago.

Anything that Congress legislates that isn’t indexed for inflation is intended to suffer from the hidden tax that it represents. Any legislator claiming otherwise is lying.

Some of the others (#2, #4, #5, #9) are perhaps true today. But the rules can change at any time. Tax deductibility of mortgage interest is only there as long as it’s not repealed from the tax code. And given how fast house prices have risen recently, I’m not gonna bank on #2.