I met with a financial advisor for the first time yesterday (trying to get my things in order for retirement). During our meeting he told me a story that sounded pretty impressive, but the more I think about it, the more I don't understand how it would work.
I have a rich client who is retired. He was paying a fortune in taxes. I advised him to take out a mortgage on his already paid off house. Thanks to the deductions the house gave him, he actually paid less on the mortgage and his taxes than he was before.
(This is all in the US, by the way.)
He went into more detail about how it was tricky to get the mortgage and it all sounded very creative. But my very limited understanding is that this is impossible. The deductions you get from the interest on your mortgage will reduce your taxable income, but it's only going to reduce your tax burden by something like 30% (optimistically).
If I reduce my taxable income by $1, and I'm paying 30% in taxes, I've saved .30 off my taxes, but I still have .70 less than I would have if I just did nothing. At least, that's how I understand it.
Now, I get that it's different if you are comparing renting a house verse buying a house - because things like the value of the home become a factor. If the house appreciates or depreciates it changes the numbers drastically - but in this story, the guy already owned the same house, so it has no impact.
This guy is a professional and had a bunch of certifications and what not on his desk....but it just sounds completely wrong to me. Can someone explain what I'm missing?