Saturday, April 4, 2009

Home Mortgage - Part 2 By Nate Perrott

In most areas of the country, you could find a good buy on a small house and end up paying $1,000 to $1,200 a month in mortgage payment. Likewise, you could find a beautiful apartment in an exclusive area with all of the amenities and pay $1,000 to $1,200 a month. With this example it would seem not to matter whether you buy or rent. But think again. As of this writing, the interest on your mortgage payment as well as the points you paid to get the mortgage and your property taxes are all deductible from your income taxes. Depending on your income and other possible deductions, you may need that mortgage payment in order to keep your income taxes down. If the annual interest on your mortgage comes to $8,000, claiming this on your income tax could mean the difference between getting money back from Uncle Sam or having to pay him additional money over and above what you have deducted from your weekly pay check. In other words, just paying that $1,200 mortgage each month is not the only expense.

But, is it more important to you to pay less income taxes or have more money in your account for other things? Keep in mind that what you save on taxes by having a mortgage will be balanced out by what you have to spend every year in upkeep and maintenance. For instance, how much would you have to pay for snow plowing in the winter or mowing the lawn in the summer for a house that you would not pay in an apartment complex? How much would you pay for a new roof in 20 years, painting the house exterior in 10 years, and continual landscaping that would be taken care of for you in an apartment? Would you be paying extra for garbage pick-up or water in a house? Would you really love to be able to swim in a pool every day and how much extra would that pool cost? So, did you just decide that maybe a really nice apartment without having to pay for the repairs and upkeep might be a better idea? Or are you saying, "yeah, but think of the equity I would have in my own home."

Equity in a home is what the house is now worth in the current market minus what you paid for it and minus major renovations. The idea behind this is that the longer you stay in a house, just the natural cost of living increases will create a rise in the value of your home. That is, you buy a house for $100,000 and ten years later it is now worth $200,000. This used to be true. Unfortunately, this type of equity is no longer a given in this equation. Because our population is free to move around and does so continually, the areas where home values are increasing is continually changing. As people continue to move into new houses out in the countryside, the older homes lose value.

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