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Path: utzoo!watmath!clyde!cbosgd!ihnp4!ihuxk!rs55611
From: rs55611@ihuxk.UUCP (Robert E. Schleicher)
Newsgroups: net.invest
Subject: Re: The 3% rule
Message-ID: <1067@ihuxk.UUCP>
Date: Tue, 11-Feb-86 14:30:59 EST
Article-I.D.: ihuxk.1067
Posted: Tue Feb 11 14:30:59 1986
Date-Received: Wed, 12-Feb-86 08:33:34 EST
References: <182@milo.UUCP> <719@ttrdc.UUCP>
Organization: AT&T Bell Laboratories
Lines: 35

> >It seems to me that, as long as I keep the mortgage at least 2 1/2 years,
> >this is a good deal.  Am I missing something?  Maybe we should rename
> >it the 2% rule.  Actually, maybe we just shouldn't have a rule.  The
> >criteria seems to be the cost of refinancing and how long you expect
> >to keep the mortgage.  If you plan to pay the mortgage to the bloody end,
> >even a difference of only 1/2% might be worth your while, though I
> >wouldn't recommend locking yourself in for an inordinate amount of time.
> >But 2 1/2 years is perfectly reasonable.
> >					don davis
> 
> Don't forget to factor in the effect of tax deductions for interest.  While
> they aren't usually enough to pay the interest itself (a slight understate-
> ment!) they will add to the 'break-even' time you cite.
> -- 
>  -------------------------------    Disclaimer:  The views contained herein are
The tax effects are more subtle than alluded to above.  The refinancing 
points are deductible in the present year ($3000 in example above), while the
reduced monthly payment lowers deductions by $128 per month.  The net effect
is not great, but taking the bigger deduction now, and having lower deductions
later, actually moves the "break-even" date up (sooner), barring your
tax rate going to a much higher percentage in the next couple of years.  The
tax effect probably only moves the break-even point a month or two, in most
situations.

Bob Schleicher
ihuxk!rs55611

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