What have you always wondered about the economy? Tell Us
Ask Money

Mortgage and taxes

Chris Farrell Jul 27, 2010

Question: We will finish paying off our mortgage in four years. If all goes as planned, once we retire (shortly after), we will be mortgage-free.

Here’s the question: we could pre-pay and be finished in two years. If we do that, we will lose the mortgage interest deduction while we are making more money. Should we pre-pay, or should we pay at our current rate so that we can take advantage of the tax break on mortgage interest?

I must be missing something here. It seems to make sense to pay more quickly and lower the amount of interest that we will pay. However, I like that tax deduction too. Any advice would be welcome. Thanks–Kathy, Franklin, IN

Answer: I’d get rid of the mortgage. The mortgage interest deduction is probably the best-known break in the tax code–and the most overhyped.

You’ll come out ahead by paying off the mortgage because you won’t pay interest to the bank anymore. The value of the mortgage interest deduction declines in the later years of the mortgage when the interest portion of the monthly payment is much smaller than in the early years. You’ll still be able to take advantage of the standard deduction.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.