An investment that pays 4 percent interest would need $270,000 to cover the payment with one problem: the IRS sits between the interest income and the mortgage payment. Using the same marginal tax rate, the client nets 2.68 percent in after-tax dollars. The client really needs $403,000 of assets dedicated to pay a $200,000 mortgage. They get a small rebate on the tax return, but they still have to spend a dollar to get the deduction. It would make more sense to eliminate the mortgage and have $203,000 invested instead.
All Financial Planning articles are archived after 7 days. REGISTER NOW for unlimited access to all recently archived articles, as well as thousands of searchable stories. Registered Members also gain access to exclusive industry white paper downloads, web seminars, blog discussions, the iPad App, CE Exams, and conference discounts. Qualified members may also choose to receive our free monthly magazine and any of our daily or weekly e-newsletters covering the latest breaking news, opinions from industry leaders, developing trends and growth strategies.