Completely inappropriate question about financial matter

Quote: odiousgambit

That is an excellent rate! Assuming you aren't paying 3 points at closing to get it.

Quote: DorothyGale

These are the basics. The complication arises because of amortization. The numbers below are not static over the life of the loan.

If I take that $400k loan, then I am paying $2950 each month to the bank.

Out of the $2950, $1625 goes to principle, which is an equity line item, leaving $1325 in interest.

Out of the $1325 in interest, which is tax deductible (I am in the 33% bracket), I get $442 back in taxes. That leaves a payment of $883.

Now, I have that $400k to invest as a result of taking the mortgage. Say I get 3% tax free in state municipal bonds. That's an annual income of $12000 from the $400k, or about $1000 per month in income.

I now MAKE $117 per month in profit by taking the loan.

The key point is how much I can make in tax free municipal bonds. At 2% I am losing, at 3% I am winning. I buy shares of FCTFX which has paid over 3.5% for as long as I remember.

FCTFX CHART

Now, if I pay off the loan, then that same $400k is with the bank and I don't get any benefits from investing it, or tax breaks, or equity increase.

--Dorothy