It’s amazing how often conventional wisdom is just simply wrong. For example, the old health myth “feed a cold, starve a fever” is actually very wrong. You need a lot of nutrients and energy when you’re sick regardless of whether it’s a cold or fever. These incorrect myths extend far beyond home remedies though, it goes into the large world of finance as well. Let’s talk about the following myth: “It’s better to not pay my house off early for the tax deduction.” These people just can’t do math.

Let’s talk about it. If you have a conventional, FHA, or VA loan, you can qualify for a tax deduction each year. This tax deduction is equal to the amount of interest you paid on your mortgage for the previous year. This means that if our friend Bill had a $100,000 loan and paid $7,000 in interest last year, he would be able to deduct the amount of $7,000 from his income each year. Bill now gets to report that he has $7,000 less income then he actually does, and thus gets to pay fewer taxes. That sounds like a pretty good deal, right?

Well, it sounds kind of nice, until you actually do the math. Bill has a $100,000 conventional mortgage with an interest rate of 7%. So John gets a $7,000 deduction anymore, and let’s say he makes $40,000 a year and is in the 25% tax bracket. This means John won’t have to pay taxes on his $7000 anymore, this will have him a total of $1,750 each year in taxes, that doesn’t sound like too bad of a deal, until you remember how much money you are sending to the bank. You are giving the bank $7000 in interest each year.

The numbers begin to sound really fishy quite quickly. You are sending the bank $7000 in interest so that you can avoid sending the government $1,750 in taxes a year. This doesn’t exactly sound like a good deal. The people who propagate this myth are simply wrong.

If you are absolutely heart set on getting your tax deduction, there are a number of other ways you can prevent from sending the government the full amount of money you owe. If you donate money to charity, that will give you the exact same tax deduction as not paying off your house! I’m fairly sure most people would rather give their money to a more worthy cause than making the bank even richer.

Now, there might be some other reasons why you wouldn’t want to pay your house off early, such as investing the money that you would have otherwise sent as a house payment, but the tax write off alone is not a reason to keep a mortgage.

Learn more about getting an FHA home loan or FHA refinancing from the government loan specialists today!