Mortgage Confidential: Will a higher rate give me more tax write-offs?

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Q: David -- I've been asked by Freepoint to refinance with them. This company claims that I would build up wealth by investing the difference in my equity with them, getting an interest only loan. They state that having equity in your home is not good because someone can sue you and have a claim on your equity. After several years, one would have enough money to pay off their mortgage if they desired. I would like to get advice on this. They said the higher interest would be a tax write off and I would be investing the equity and getting a higher return. Please advise. Thank you. - Helen

A: Helen -- Don't return their phone calls. I don't know who that company is, and while I'm sure they're a fine organization, I'm not comfortable. I see three big problems with this "pitch" which used to be very popular among mortgage loan officers yet seems to be falling by the wayside.

  1. Build wealth by investing the different in equity with them
  2. Having equity in your home isn't good because someone can sue you
  3. The higher interest would be a tax write off

Sheesh. And I thought loan officers like that were out of business or selling cars or something.

Build wealth: Sure. The math always works with their calculators that show how much money you'd be making if you invested XX amount over XX number of years. Okay, fine. Which stocks? Which mutual funds? For how long? And how do they know any of this? The fact is that they don't, and you can bet your bottom dollar (if you have one by the time these folks get through with you) you'll be signing a horde of disclaimers saying that there are no guarantees. And you can still invest money each month any way you want without such a plan.

Equity isn't good. Since when? Since when all those people over the past few years tried to sell their house but couldn't because they didn't have any equity? Personally I think equity is darned good, especially when you have it and no house payment. Yeah, yeah, I know. If push came to shove then you use the proceeds from your investments to bail you out. Right. That apparently went down really well in places like Miami, San Diego and Detroit. And people can sue you all they want but that doesn't mean they can take your house

The higher interest is a better tax write-off. This is the hilarious one. If that were true, then why not take a mortgage with a 99% interest rate so you can take advantage of the higher mortgage interest deduction? These guys are some real Einsteins.

    The fact is that people like these folks really don't care about you or your situation, they want to do two things: Strip the equity out of your home via a refinance so they can make money on your mortgage (with a higher loan amount, by the way, so they can make even more money off of you) and make commissions on investments they make on your behalf. I know this is only my opinion, but such pitches -- and they are pitches -- (and I'll just bet their "loan officers" are trained to read a script), make me sick to my stomach. -- David

    Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.

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