Is there a tax disadvantage to paying off a mortgage?
A simple way to think about deductions, standard vs itemized, and the real cost of interest.
Is there a tax disadvantage to paying off a mortgage? This question often comes up when homeowners want to understand whether losing a deduction changes the math of making extra principal payments.
Answer
Paying off a mortgage can reduce or eliminate the mortgage interest deduction if you itemize, which some see as a tax disadvantage. However, many homeowners now use the standard deduction, meaning they receive no direct tax benefit from mortgage interest. Even when deductible, each interest dollar still costs more than the tax savings it produces, so carrying a mortgage solely for a deduction rarely makes sense. After payoff, your tax return may simplify, but you will lose that particular deduction line. Evaluate your situation using recent returns or tax software projections before deciding how heavily to weigh this factor.
Run scenarios on the home loan payment estimator to see how payment size and rate changes affect your cash flow.
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