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In the US, the http://en.wikipedia.org/wiki/Home_mortgage_interest_deduction http://en.wikipedia.org/wiki/Home_mortgage_interest_deductio... on your first home

by cscheid 12y ago

In the US, the http://en.wikipedia.org/wiki/Home_mortgage_interest_deduction http://en.wikipedia.org/wiki/Home_mortgage_interest_deductio... on your first home makes a huge difference when making rent-vs-own plans. It wasn't obvious to me when I first started making rent-vs-own plans (I'm not a US citizen). In 30-year mortgages you are realistically paying more than half your monthly payment as interest, and doing that with pre-tax money means you're conservatively looking at 15% total reduction in monthly payments compared to renting.

refurb 12y ago
As stated above, it really depends on a number of factors whether renting is cheaper or more expensive than buying. You are right that the US has two things to advantage owning: (1) mortgage interest tax deduction and (2) 30-year mortgage terms. If you're lucky enough to lock in a mortgage rate of ~3%, when you add in the mortgage interest tax deduction, you're practically paying nothing for the money you are borrowing. However, all it takes is a 10%+ drop in the market when you are selling to wipe out any advantage to owning and often you'll come out behind of someone who rents.
dionidium 12y ago
We're pretty far off topic now, but this benefit has been overstated. In most of the U.S. -- the areas not discussed in this article -- cheap housing is the norm. If you have, say, a $150k mortgage at 5% for 30 years, then your yearly interest is going to be less than $5k. That's less than the standard deduction.
- selectodude 12y ago
  Essentially it's a tax write-off for the wealthy.
  - Domenic_S 12y ago
    Not at all. The deduction (all itemized deductions in fact) phases out starting at $300k household income, which is pretty trivial for a 2-techie couple in an urban tech hub.
    - gojomo 12y ago
      A "2 techie couple in an urban tech hub" is "the wealthy".
      - Domenic_S 12y ago
        I disagree - but even if I concede, you're proving my point.
    - dionidium 12y ago
      $300k household income, which is pretty trivial Anything over $250k puts you in the top 2% of U.S. households. Your definition of words like "trivial" and "wealthy" might be different from mine.
  - prostoalex 12y ago
    No, because wealthy families are typically hit by AMT, not income tax, and mortgage interest is only deducted under income tax. It's a write-off for someone who's making enough money to find it worthwhile to itemize but not enough to pay AMT. Wealthy families also have access to higher-quality asset-backed loans which typically come with lower interest rates.
    - mercutio2 12y ago
      This is inaccurate. The AMT disqualifies home equity loan interest, but not purchase loan mortgage interest. It does remove the deduction for property taxes (and other state/local taxes), which is perhaps what you were thinking of.
  - smsm42 12y ago
    Unless you call "wealthy" anybody who owns 20% of a house, not really.

by cscheid 12y ago

refurb 12y ago

As stated above, it really depends on a number of factors whether renting is cheaper or more expensive than buying. You are right that the US has two things to advantage owning: (1) mortgage interest tax deduction and (2) 30-year mortgage terms. If you're lucky enough to lock in a mortgage rate of ~3%, when you add in the mortgage interest tax deduction, you're practically paying nothing for the money you are borrowing. However, all it takes is a 10%+ drop in the market when you are selling to wipe out any advantage to owning and often you'll come out behind of someone who rents.

dionidium 12y ago

We're pretty far off topic now, but this benefit has been overstated. In most of the U.S. -- the areas not discussed in this article -- cheap housing is the norm. If you have, say, a $150k mortgage at 5% for 30 years, then your yearly interest is going to be less than $5k. That's less than the standard deduction.

selectodude 12y ago
Essentially it's a tax write-off for the wealthy.
- Domenic_S 12y ago
  Not at all. The deduction (all itemized deductions in fact) phases out starting at $300k household income, which is pretty trivial for a 2-techie couple in an urban tech hub.
  - gojomo 12y ago
    A "2 techie couple in an urban tech hub" is "the wealthy".
    - Domenic_S 12y ago
      I disagree - but even if I concede, you're proving my point.
  - dionidium 12y ago
    $300k household income, which is pretty trivial Anything over $250k puts you in the top 2% of U.S. households. Your definition of words like "trivial" and "wealthy" might be different from mine.
- prostoalex 12y ago
  No, because wealthy families are typically hit by AMT, not income tax, and mortgage interest is only deducted under income tax. It's a write-off for someone who's making enough money to find it worthwhile to itemize but not enough to pay AMT. Wealthy families also have access to higher-quality asset-backed loans which typically come with lower interest rates.
  - mercutio2 12y ago
    This is inaccurate. The AMT disqualifies home equity loan interest, but not purchase loan mortgage interest. It does remove the deduction for property taxes (and other state/local taxes), which is perhaps what you were thinking of.
- smsm42 12y ago
  Unless you call "wealthy" anybody who owns 20% of a house, not really.