"Andy" <ineverevercheckthismailbox[at]yahoo.com> wrote in message
news:1138659912.740384.198130[at]z14g2000cwz.googlegroups.com...

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Andy,

What a great analogy! I'll try to remember to give you credit when I use
this with my tax clients <g
Gene E. Utterback, EA, RFC

after I asked my question, I was thinking about how I could have been
so stupid. I stand corrected.

"jIM" <noreplysoccer[at]hotmail.com> wrote in message
news:1138719244.321386.87500[at]g43g2000cwa.googlegroups.com...
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No. The amount of interest you pay is based on the loan balance. It doesn't
matter what the original loan length is if you're paying down the principal
in a shorter time. This is why you pay less interest on a 30 year loan when
you make extra principal payments.

Elizabeth Richardson

John A. Weeks III wrote:

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I believe anyone can loan money to anyone else, and interest is
deductible regardless of who the loan is from as long as it is secured
by your residence. There are a lot of seller carry-backs in this
world, and I doubt the buyers in those deals are foregoing their
mortgage interest deduction!

That being said, if you set up a business to loan yourself money to
purchase a home then you are going to have to report the interest as
interest income for that business, just like you have to report
interest earned on your money market account, so I don't think the OP's
scheme would really have any tax advantages. i.e. the reason everyone
isn't doing it is because its pointless.

Andy

jIM wrote:
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No. As the principal balance declines, so does the interest.

--
================================================== ======================
Ian Pilcher i.pilcher[at]comcast.net
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zxcvbob <zxcvbob[at]charter.net> writes:

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After a *single payment* you are paying more interest on the
30-year. See the numbers I posted just a moment ago. It's
not a huge difference, but it grows fast.

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"jIM" <noreplysoccer[at]hotmail.com> writes:

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Please quote the content to which you are responding.

And the answer is no.

Suppose a $100,000 mortgage at 8%, 30yrs:

Paying normally:
payment 1: 67.09 prinicpal, 666.67 interest = 733.76 payment
Now your prin balance of 99932.91 outstanding
Note that 666.67 = 100,000 * 0.08 / 12

payment 2: 67.54 prinicpal, 666.22 interest = 733.76 payment

The payments stay the same, but the amount of interest
*declined* - because you now have less outstanding
principal on the loan. 666.22 = 99932.91 * 0.08 / 12.

If you add extra money to that first payment, say you add
an extra $500, you have this:
Payment 1: 567.09 principal, 666.67 interest, 733.76+500 payment
Now your prin balance of 99432.91 outstanding
Payment 2: 70.87 princiapl, 662.89 interest, 733.76 payment

By paying down your princiapl faster, you are paying *less*
mortgage interest. That one $500 payment will speed up the
overall repayment of your mortgage by several months - it's
quite remarkable, actually. It kind of time-warps you from
month 1 to month 9 or so - inasmuch as your princiapl balance
after that extra payment is what it would be normally
after about 9 months. But the further along one is in paying
down a mortgage, the greater the proportion of any payment
is principal rather than interest - because the interest is
calculated against your remaining principal balance.

(BTW, the 10-yr payment on $100,000 at 8% is $1213 -
quite close to my "extra $500" numbers above)


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jIM wrote:
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As long as there is no prepayment penalty, taking a long-term loan and
making payments as if it were a much shorter term is a good thing; it
pays off the loan quickly without commiting you to the higher monthly
payment that you might not can sustain if you lose your job or something.

Someone earlier mentioned a 30 year loan loading more of the interest up
front than a 20 or 15 year loan (I think this is what you were referring
to in your question.) This is not true; the 30 and 15 year loan start
out with the same interest per payment (assuming the same rate.) A year
into the loan, you are paying more interest with the 30 only because you
have not yet paid down as much of the principle.

Bob

taking the 30 year loan and mailing the 10 year payment would maximize
interest paid (early on), and still pay off mortage early, correct?

In article <1138696887.608362.134780[at]o13g2000cwo.googlegroups.com> ,
"asdf" <qjohnny2000[at]yahoo.com> wrote:

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Wouldn't you have to be a licensed mortgage broker or a
mortgage lender in order to run a company that makes home
loans that are tax deductible? If this were allowed, I'd
think that everyone in the US would be doing it.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

the only scenario where it would make sense possibly might be if you
had a enough cash to pay for the house outright and instead of doing
that set up a company to loan yourself the money to claim the
deduction. i think this is allowed under federal tax code but you
cannot charge yourself an unfair interest rate. the only problem with
this i was thinking was that the company you set up would make a profit
i think and that would be taxed...
i've seriously considered doing something like this.

asdf wrote:

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The federal tax code also gives deductions for medical expenses and
casualty losses (like losses from theft or fire). Would you try to
maximize those expenses in order to increase your tax deductions?
(Think of the income tax you would save using this deduction if you
buy a Hummer for cash, don't insure it, and then park it with the doors
unlocked and the keys in the ignition in a bad part of town!) If you
wouldn't try to maximize your casualty losses to save on income taxes,
why would you maximize your interest expense for that purpose?

In any event, you misunderstand how interest works on a mortgage. To
maximize the amount of interest you pay over the first few years you
would want the longest term loan possible, not the shortest. The way
amortization works is that you pay the total interest due on the
principal balance each month and then the difference between the
interest due that month and the fixed monthly payment gets applied to
principal. So on a 10 year loan (as compared to a 30 year) the monthly
payment is set higher so that you pay much more prinicipal each month,
which means your principal balance falls faster, which means your total
interest expense over the life of the loan is much lower.

Andy


On a long term loan your payments for the first few years are almost
all interest and you pay very littlethe amount of interest you pay each
month over the next few years would actually be greater with a 30 year
loan than a 10 year loan.

i look at the property and the property tax alone is about what i pay
in rent for my apt currently ! that does not even include condo fees.
it seems buying is just not a good investment unless you think property
values are going way up.

i defn max out my 401k each year. i like the idea about doing a roth
conversion. i do imagine though i could not convert the whole thing to
a roth ira.

In article <1138548803.845617.12650[at]o13g2000cwo.googlegroups.com> ,
"asdf" <qjohnny2000[at]yahoo.com> wrote:

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If you are in school and not earning anything, the mortgage
deduction will be of no value. You don't have any income
to subtract it off of. As a result, you will not be able to
take it. Even if you did have some income, the standard
deduction is so high these days that you would have your
full allowed deductions before you got to the interest
deduction. Either way, the mortgage interest deduction doesn't
do you much good.

The whole concept of the mortgage interest deduction is flawed.
If you were in the 30% bracket, for each dollar you spend on
interest, you get about 30 cents back from the government.
If you think about it, that is a horriable deal. You are
paying $1 for each 30 cents you get back, so you lose 70 cents
on each dollar.

It is far better to not pay any interest, even though you
don't get the deduction that way. You end up far better off
financially.

The best plan is to buy something that you can afford. A
student has no business living in a million dollar condo.
Once you find something that is more in line with your
lifestyle, then establish a payment plan that you are
comfortable with over the long run. Finally, save money
prior to quitting your job so you have enough in savings
to pay your mortgage and expenses while you are in school.
On a $230K income, that shouldn't take all that long.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

"asdf" <qjohnny2000[at]yahoo.com> writes:

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I think too many people approach this decision thinking about "saving
income tax" instead of "saving money". You also have to think about
asset allocation -- how much money do you want to have locked up in
an illiquid form like home equity when you are planning to have to live
off your savings for a few years? You'd better make sure that you're
setting enough aside in cash to tide you over, as well as an emergency
fund to cover the inevitable repair expenses, etc.

In any case, a shorter-term mortgage will mean you pay less interest
and more principal, not the other way around. If you decide you do want
to try to put more money into home equity, I'd go for a standard 30-year
mortgage and just make extra principal payments while you have the extra
income now. When you start school, you could either go back to the
normal payment schedule, or check to see whether it makes sense to
refinance.

BTW, one thing I suggest you do to "save income tax" is to max out
your 401(k) plan while you are making big bucks. When you quit your
job to go back to school, roll it over into an IRA, and then do a Roth
conversion on it (along with any other traditional IRAs you might have
sitting around) during a year in which you are not working. Ta-da!
You've just shifted all that money from a very high tax bracket to a
very low one. Works even better if you use money from another source
to pay the taxes instead of throwing away a part of your tax-deferred
savings to do it.

-Sandra

i currently work full time and make 230k per year but in 3 years plan
to go back to school full time where i won't make any money for a few
years.

right now i'm planning on buying a condo that is about 700k. the
question is should i only mortgage it for a short time period like 10
years to maximize the amount of money i pay per month in interest since
so i can claim a high tax deduction and then when i go to school
remortage for a longer time period ? i want to save as much income tax
as possible.

my one concern is that in a few years when i go to school interest
rates could have changed so i'll be stuck remortgaging at a higher rate
.. also the bank may relize i'm in a bind not being able to make the
payments ( since i'm not working ) and negotiate hard on the mortgage
rate.