A. Yes – and generally speaking, that's a good thing! Here’s why: in very general terms, the amount of your tax benefit is based on the amount of mortgage interest you paid in a year, and your marginal tax bracket. For simplicity’s sake, assume that you paid $10,000 in mortgage interest and you were in the 28% tax bracket. Your tax benefit would be $2,800. In other words, you pay one dollar to get back twenty-eight cents.
If you pay off your mortgage, you will obviously lose your mortgage tax deduction. Your tax bracket will also probably go up. Assume it went from 28% to 33%. You would then pay $500 more in income taxes, for a total of $3,300. BUT, you would NOT be paying $10,000 in interest to the mortgage company. At the end of the day, you will have $6,700 more cash in your pocket. ($10,000 – 3,300 = 6,700).
If you don’t itemize (if you take the standard deduction), there is no tax benefit to having a mortgage. Disclaimer: We are not your tax advisors, and the above information is not to be construed as individualized tax advice.
