Mortgage (and other) Interest

My last post provided one way of looking at the costs of buying a home. This post will expand on the ideas brought up in the comments.

Deducting interest

The interest that you pay throughout the year on your mortgage can, under many circumstances, be deducted from your taxes at the end of the year. You must itemize your deductions to do this. The same thing is true for interest paid on student loans.

Does this mean you should maximize interest in order to get the deduction?

Certainly not! Financially speaking, you should never try to pay more today so you can get some back later. The fundamental principle in all financial planning is that one dollar today is always worth more than one dollar tomorrow. (This is true even in times of deflation because of the interest you could be earning on that dollar).

So when it comes to interest, or any other government "paybacks", remember:

ONE DOLLAR TODAY IS WORTH MORE THAN ONE DOLLAR TOMORROW

This means that you shouldn't pay more in interest over the life of a loan simply to get it back later. The same is true when you consider your income withholdings. Some people want the government to keep more money from each paycheck so they can get a bigger return at the end of the year. Remember:

ONE DOLLAR TODAY IS WORTH MORE THAN ONE DOLLAR TOMORROW

Other considerations

The $8,000 first-time home buyer tax credit has been extended through May 1 of this year (a binding contract must be entered into by May 1 and deal must close by July 1). You must live in the house for at least 3 years or else you will need to pay back the $8,000. But even if you have to pay it back later, remember:

ONE DOLLAR TODAY IS WORTH MORE THAN ONE DOLLAR TOMORROW

In addition, other costs should be considered when deciding to buy a home:

Home owner's insurance

Home owner's association fees

The cost of making your own repairs

The high cost of leaving the house on short notice

Happy day to you all.