Should You Pay Off Your Mortgage Early?
What You Need to Know About the Standard Deduction and Mortgage Interest
Many people hold onto their mortgage with the idea that it’s providing a helpful tax deduction on the interest they pay. But is this really the best financial strategy for you? If you’re wondering whether to pay off your mortgage early or continue holding onto it for the tax benefit, this post will help clear up the confusion.
Let’s break it down and give you some clear insights, complete with examples, so you can make informed decisions about your money.
The Standard Deduction: A Simple Tax Benefit
First things first—let’s talk about the standard deduction. For 2024, if you’re filing as married, you get $29,200 in standard deductions.
This amount is available to anyone who doesn’t itemize their deductions. That’s right—you don’t need a mortgage to take advantage of the standard deduction. It’s a fixed amount that reduces your taxable income, making your tax filings simpler and saving you money without needing to track every expense.
For most people, the standard deduction is far more beneficial than itemizing, and it applies no matter whether you have a mortgage or not. The standard deduction is an automatic benefit for taxpayers who don’t have enough deductible expenses to exceed it.
Tax Code Reference:
IRC Section 63(c): This section defines the standard deduction for individual taxpayers who don’t itemize their deductions. It explains that this fixed amount reduces your taxable income, making filing taxes simpler.
IRC Section 63(b): Explains the conditions under which taxpayers may claim the standard deduction based on their filing status.
Does Mortgage Interest Actually Save You Money?
Now, here’s the part where things get tricky. Many people believe they’re saving money by keeping their mortgage because they can deduct the interest. But the reality is a bit different.
If you itemize your deductions (adding things like mortgage interest, medical expenses, and state taxes), then, yes, mortgage interest can reduce your taxable income. But here’s the catch: only people whose itemized deductions exceed the standard deduction will benefit from this.
And here’s the truth for most taxpayers: 91% of people don’t even itemize because their expenses don’t exceed the standard deduction.
That means, for most of you, even if you’re paying thousands in mortgage interest, you’re not even getting that deduction.
The Trade-Off: Mortgage Interest vs. Tax Deduction
Let’s break it down with a quick example:
Scenario: Keeping the Mortgage for the Deduction
Income: $150,000 (married, filing jointly)
Mortgage Interest Paid: $33,976
If you don’t itemize, your mortgage interest deduction doesn’t do anything for you.
You’re stuck with the standard deduction, which for a married couple is $29,200.
That mortgage interest, while seemingly helpful, just goes to the bank.
So what are you left with?
You’re trading $33,976 in mortgage interest for a small $1,000 tax benefit (depending on your tax rate).
Tax Code Reference:
IRC Section 163(h): Addresses deductibility of mortgage interest. This section allows you to deduct interest on your mortgage if you itemize, but this is only valuable if your total deductions exceed the standard deduction.
Does this trade-off really make sense? Let’s look at another scenario:
Scenario: Paying Off the Mortgage Early
Instead of holding onto that mortgage for a tax benefit, what if you used money from a car sale to pay down your $90,000 mortgage? By doing this, you pay off the mortgage in 1 year instead of 3, eliminating years of interest payments.
Result: You’re no longer paying that interest to the bank, and that money can go into savings, investments, or be enjoyed without the stress of a mortgage.
You’re not just eliminating a debt—you’re freeing up money that would’ve gone to interest and putting that to work for your future.
Is the Tax Deduction Worth It?
Here’s where the math becomes clear: Keeping your mortgage for the tax deduction usually doesn’t make sense because:
You’re not benefiting from it if you don’t itemize.
The tax savings are small compared to the interest you’re paying.
Paying off the mortgage means eliminating debt, which gives you more freedom and flexibility with your finances in the long run.
What Should You Do?
If you’re wondering whether paying off your mortgage early is a smart choice, here’s the key question: Are you itemizing?
If you’re not itemizing, paying off your mortgage won’t affect your taxes at all, and you’ll still benefit from the standard deduction.
If you are itemizing, you need to compare your total itemized deductions with the standard deduction. If your mortgage interest isn’t enough to make itemizing worthwhile, focus on paying off the mortgage and freeing up that cash.
The Bottom Line: Financial Freedom Over Tax Deductions
The bottom line is simple: don’t hold onto debt for a tax deduction. The goal should be to eliminate your debt as soon as possible and start building wealth. The small tax savings you get from keeping the mortgage are nothing compared to the freedom and wealth-building power that comes from being debt-free.
Paying off your mortgage early gives you peace of mind and financial freedom—something a tax deduction can never provide.
Conclusion: Make the Smart Move for Your Future
It’s time to ditch the mortgage interest myth. If you’re not itemizing, the standard deduction is your best option. If you are itemizing, but your total deductions don’t exceed the standard deduction, then it’s time to rethink keeping the mortgage for the sake of taxes.
The most important thing to remember is that paying off your mortgage early is one of the smartest moves you can make for your financial future.
