First, there's the oft-repeated myth that the tax deduction for home mortgages is a key building block of wealth. I'm all for tax deductions, but that tax deduction is allowed only when interest is paid by the homeowner. And the cost of the interest will always be greater than the tax savings.
Here's an example: Let's assume someone has a marginal tax rate of 35 percent and pays $10,000 per year in interest charges. A tax deduction can be taken for the interest paid, but the tax savings for the deduction is only $3,500, leaving the homeowner on the hook for the remaining $6,500.
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So technically, yes, the taxman received $3,500 less, but the homeowner is still poorer by that $6,500.
The second reason so many people retire with mortgages is that they've been convinced that their home's equity shouldn't just sit idle. I cringe when I hear or see ads encouraging people to raid the equity in their homes.
Using a home loan to take on debt is not unleashing equity—not even close. It's putting yourself into debt and holding your home hostage as collateral.