Colli Real Estate

What will save more interest: early mortgage payments: paying monthly extra starting right…?

…away or accumulating a chunk
What will save more interest: early mortgage payments: paying monthly extra starting right away or accumulating a chunk and reducing the total paid/month, changing the amortization?
What is the interest tax credit, how much do I get back of that interest?
Or is it a tax deduction?
I was told to keep some mortgage since I get some tax back. Cannot find calculations how and if that balances and if investing rather than early pay is better.

If you are going to be putting the money you are accumulating into a non-interest bearing account, you will save more if you pay extra monthly. If you are putting the money into an interest bearing account and the interest rate that you will be earning is higher than the interest rate you are paying on your mortgage, you will end up with more money if you accumulate a chunk of money to pay off. Both of these things will either lower your monthly payments (the latter doing it all at once, the former over a period of time) or result in your paying off your mortgage early. Early mortgage payments might save you a little money (I’m assuming you mean something along the lines of my mortgage payment is due on the 21st and I pay it on the 1st), but not a whole lot by itself.

The tax deduction for mortgage interest
Interest you pay on your mortgage is a tax deduction. That means that if you have an income of $100,000 and you pay $5,000 in interest you will taxed on $95,000 of your income. This means that if the marginal tax rate (highest tax bracket you are in) is 25% you will save $1,250 off your tax bill. If it was a tax credit (and I have never heard anything that says it is) you would receive $5,000 off your tax bill.

Personally, I think that in most cases, keeping your mortgage around to get a tax break doesn’t make sense since in my example you would still be out of pocket $3,750. There may be something here that I do not know about however.

You should also check out http://www.bankrate.com/brm/popcalc2.asp for an automatic loan calculator that includes the option to add additional amounts onto your payments or to add additional lump sums.

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