WASHINGTON – Oct. 12, 2011 – The good coming from today’s otherwise bleak economy is some of the lowest interest rates in more than half a century.
So some people want to know if they should take advantage of that – to the point of refinancing more than what they actually owe on their home loan.
One 75-year-old wanted to ask certified financial planners if they thought it was a good idea for him to take out a $250,000 loan when he owes only $50,000. The extra $200,000 he could invest in relatively safe bonds, he said. Plus, he said he could deduct the mortgage interest on his federal income taxes.
Not so fast, said the planners.
What he wants to do is borrow to invest – and that’s not such a good thing, especially for a retiree, said Matt Saneholtz, president-elect of the Financial Planning Association of Greater Fort Lauderdale, Fla.
“Many advisers suggest not having any debt during the retirement years and I tend to agree,’’ Saneholtz said. He suggested the man ask his financial planner about the strategy.
And the retiree may not save as much in taxes as he thinks: If he’s in the 25 percent tax bracket, then he saves only about a fourth of the interest he pays, Saneholtz said.
Also, borrowing to take a tax deduction may not be a good idea as Congress has been floating the idea of eliminating the mortgage interest deduction, said panelist Blair Shein, a former president of the Financial Planning Association.
Shein said he doesn’t think that Washington will act any time soon to eliminate the popular deduction – but it may happen down the road.