I think you should take out a mortgage to buy a house. It’s much better to be paying off a loan for a house you will eventually own than it is to be paying rent. However, mortgages are not a "good deal." Paying off your house is the smarter financial move! Even if you can deduct the interest from your taxes, you still have to pay the interest first, and deducting it doesn’t mean you get it all back, it just means you don’t pay taxes on that amount of income. (And for people who says they like to borrow money that way and then invest it in something that returns more … well, that’s a risky strategy. I prefer to invest money I have instead of money I don’t have and would have to pay back if I lost it.) This guy agrees with me: How Much of Your Car Should You Finance? Zero percent. – iTulip.com Forums.
"But there are tax advantages to holding a mortgage," you say. The government raises a tax on your current income via an income tax, then offers to partially reduce it if you accept a tax on your future income via interest on a government sponsored loan to buy a house that bearly keeps up with the rate of inflationâ€“except during a housing bubble, such as we just experienced. This is what passes for good household finance? How long have North Americans been falling for this nonsense?
When you get to deduct the interest on your mortgage, you are not getting the interest money back! (Say the top part of your income falls into a 30% tax bracket. If you deduct $10,000 in interest, you would pay $3300 less in taxes. But you still paid $10,000 in interest, so you still have $6700 less than you would have had without the mortgage!)