Use Your Mortgage

01.03.08 - 07:50am :: Ronnie

Yes, that is what I said! You may be wondering how you can use debt to create wealth.
The answer is that your mortgage on your home (primary or secondary), is like getting a coupon from the federal government. It is the only debt you have that gives you a rebate on your federal taxes. If you are in a 25% to 35% tax bracket, maximizing this benefit is a must. Unlike other deductions, your mortgage interest is not subject to the AMT, (Alternative Minimum Tax). Due to congress not indexing this to inflation, more and more of us are being trapped into the AMT. If you have a mortgage now and your rate is 6% your effective rate is 4.5%, (25% bracket), and 3.9%, (35% bracket). You can’t borrow money cheaper than that in today’s market. For example:

$300,000 mortgage, interest at 6% is $18,000 annually. Your rebate at 25% tax bracket is $4,500 or $375 per month. If you save this money over a 3 year term, at 5% rate of return, your net worth will be almost $15,000 or more, depending on investment.
Even Albert Einstein was amazed at the power of compound interest.

If you are buying a home, have a large down payment, and you are in one of the upper end tax brackets, consider the following example:

$500,000 sales price and you have $300,000 to use as a down payment. Instead, put $100,000 down on the home and invest the remaining $200,000. Using a conservative 3% increase in value of home, at the end of five years your home is worth $585,000. The same investment in a 5% municipal bond will have earned $255,000 in your savings account. You have two assets working for you instead of one and the return on your initial down payment is now $85,000 on the initial $100,000 down payment. Your home is not going to appreciate any faster if you put down $100,000 or $300,000 down at time of purchase.

We all have financial goals for our future: retirement, college for your children and taking care of our parents, just to name a few. You work hard for your money; let me help you make it work for you!

For more information or for a free mortgage analysis, please contact me, Ronnie Giberson at 704-887-5050 or visit my website at www.ronniegiberson.com. I look forward to working with you and helping you reach all your financial goals!