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I read all the replies to this post and I'm a little suprised that nobody gets the strategy. You didn't state what your combined yearly income is but for the sake of argument, let's say it's $100,000 (a round number probably not far from right.) If you lived in the Grate State of Idaho, as I do, your marginal tax rate is on the order of 46% or so! (the top tax bracket for the federal income tax plus the top tax bracket for the state income tax.)

Since mortgage interest is tax deductible, you can reduce your tax bill by $1054.32 a year with the increased mortgage interest deduction, plus reduce the cost of your car. Unfortunately, mortgage loan fees will reduce the pay-off of this strategy. Nonetheless, the capital that is freed by this can probably earn a higher return than either the 7.5% or 8.325% of the mortgage rate. There are education IRAs that can be used to fund your child's education, and, if that is maxxed out, you can invest in no-load, low income, growth instruments such as SPY, QQQ or an index fund. These will grow your capital while avoiding short term capital gains.

Best of luck.


By the way; avoid mutual funds in your private portfolio, especially funds with loads. They are only appropriate in a 401k. Use index funds or index tracking stocks if you don't want to pick your stocks yourself.

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