The "Mythological" Mortgage Loophole

Why pay off a mortgage early, if it's possible? Hmmm, we can think of several reasons why we should if we could. BUT, let's not let the tax write-off be a reason for hanging onto that debt.

Here is why. Take a 300k mortgage at 3.75%. In the first year of a 30 year fixed, that is approximately 10K in interest. So we deduct it, and receive a tax refund of approx 4k, saying we're taxed at a rate of 25%. These are just some round numbers. So, we have a mortgage to receive back 40% of $10,000 spent? Yay! 

Of course, as the life of the loan ages, so does the tax benefit (Yes, it gets old paying interest). Through time, we're paying less and less each year into interest, and receiving back less and less each year in tax deduction refunds. So the math is all the same. The figures just reduce. Go figure!

Sure, the rate of return on investment can be higher than the annual interest. Giving that the market is hot, and stays hot! However, the sooner this dept is paid off, the sooner that monthly payment can be allocated to other investments, earning compound interest. 

Only graduate level Advanced Finance classes will teach adjusting for risk. So, maybe we're not expected to adjust for risk, when risk can't be put into a simple math equation.

So, what does it hurt to hang onto a mortgage? Nothing I guess, as long as life continues to flow smoothly with calm seas and blue skies. No illnesses, no emergencies, it's all good... Am I right? 

And oh by the way, at the end of the loan life, expect that 300k to tally to 500k by the date of that final payment in 2049! See you there, future self!