Should You Prepay Your Tucson Home Mortgage

Should You Prepay Your Tucson Home Mortgage

There is one school of thought that interest and property taxes on a person’s home are one of the few income tax deductions still available and a taxpayer needs as many deductions as possible.
A tax deduction does not reduce your taxes dollar for dollar, but simply by the marginal tax rate of the taxpayer. For example, if you have a $10,000 tax deduction and are in the 28% tax bracket, it would save you $2,800 in taxes. The net effect is that you still spent $7,200. The question becomes: did you get $7,200 worth of economic benefit?
Do the Math like this: let’s say you have a mortgage at 9% interest. You have an extra $100 per month available and want to put it where it will do the most good. If you put it in your savings account, you might earn 5%. If instead, you make an additional $100 principal reduction payment on your 9% mortgage, you will have a 4% net gain without any tax considerations. Regardless of what tax bracket you are in, you will save money in this example.
The answer to the original question is determined by asking yourself if you can earn more in an alternative investment than the rate being charged on your mortgage. If not, then in most cases, you will be better off pre-paying your mortgage.
There is one other consideration you should think about. Will You will need the money in the near future? You may not have quick easy access to the equity. Having that extra $100 in a bank account makes it readily available in case you need it.
Brenda O’Brien

Brenda O’Brien

REALTOR®, Associate Broker, ABR, CRS, GRI, SRS

About The Author

The team leader, trainer, & driving force of the Brenda O’Brien team. One client stated, “Brenda provides that dynamic balance of incredible service and motivation with warmth, energy, and understanding of your individual needs.” Her years of experience as a Real Estate Agent, beginning in 1993, are reflected in her success & passion for her work. Her personal energy & professional skill make her one of the best in her field. Nothing makes her happier than to see the total satisfaction of her clients with their new homes. Rosey Koberlein, CEO of Long Companies, said “Brenda is a leader who knows how to deliver quality service to her clients every day while at the same time embraces emerging business techniques, such as her strong online presence. She is a role model for aspiring sales associates in the community & across the nation.

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