Interesting fact of the day: 55.5% of “wealthy” Americans have mortgages on their primary homes vs. 44.6% of the overall population.
This doesn’t mean that the wealthy are more indebted than the rest of us; it means that the wealthy are maximizing the tax deductions that the IRS makes available to every homeowner in the country.
It’s also possible that wealthy Americans may be more likely to work with financial planners and CPAs to devise short- and long-term financial plans that take advantage of mortgage interest.
See, unlike every other type of consumer debt, interest paid on most home loans are tax-deductible and are deducted from the homeowner’s annual income. For this reason, a homeowner’s “bottom line” interest cost is much, much less than his note rate.
If you are in the 28% tax , for example, and your note rate is 6.00%, your “bottom line” interest rate is 4.32%. Check with your CPA for exact math, of course.
Wealthy or not, every homeowner should consider the impact of losing tax deductions before paying off their mortgage. If the wealthy are doing it and they have a team of advisors surrounding them, maybe there’s something to it for everybody else.