I failed big time with this one.
Let's say you have more than $300,000 in the bank. Your mortgage is $300,000. Should you pay it off or keep the mortgage in order to get the tax deduction?
At first glance the tax deduction is worth less than two percent of that 300K, so it would seem that - if one is only considering the deduction - that keeping the money in an interest-bearing account is worth more. However, if one does not pay off the house for another year just so one can get the deduction, one also has to deal with the additional year's interest on that mortgage. But then, perhaps you're making enough interest on that 300K in investments to make up for that...but if the 300K's just in a bank, it's unlikely that you're making enough interest to cover for the interest on the loan, even with the additional tax break.
In my opinion, even if the numbers might show that one makes more money by leaving the 300K in the bank, if I were you, if I were in a position that I could pay off the house - meaning, there's no obvious high-ticket problems on the immediate horizon - I'd do so right away. The reason is, back during the housing boom we refinanced our house from 230K to close to about 400K. We used it to give our son seed money for a business (which went bust)...and to buy a new house overseas and pay it off immediately. As time went on and the housing bubble burst, our house here went underwater, down to just over half what we owed on the 400K mortgage. We had to declare bankruptcy and allow it to be foreclosed, otherwise we would have been in big problems. Then we opened up a business and made good money for a few months this year...and ticked off the local elected sheriff's wife who used her connections to get us shut down and we've got a whole raft of legal problems - it's a long, long story - suffice it to say I'm about two inches from going to the local newspapers and television stations with it.
So we went through a bankruptcy and a foreclosure, and now we're going through a serious problem with the local state government...but at any time, if we really want to, we can just say the heck with it, let it all go, and move overseas and live off my retirement. We're not eager to do that...but it's really nice to have that option.
The point is, you yourself might not have that option for a house overseas...but having a house fully paid off is a really, really nice thing,
because you never know what kind of crap this life is going to throw at you. It's nice to have that 300K easily at hand in case you need it...but that also presents a temptation for you to use it, unless you're better-disciplined with money than I am. If you pay off your house, if you absolutely must, you can always take out another mortgage...but if you can, I strongly recommend paying off the house.
