Many homeowners feel that it is more beneficial to claim a mortgage tax deduction than to pay off their mortgage. However, they really need to consider whether it is more beneficial to build up their savings or to pay off the mortgage debt completely.
First, a homeowner needs to look carefully at all the items on the return. You need to know that a tax credit is not the same as a deduction. Deductions decrease the taxes you are obligated to pay; while tax credits reduce your taxable income. If you do not have a mortgage, you may pay more taxes; however, the taxes you pay may be lower than the annual interest you pay on your mortgage. It is not good long term planning to keep a mortgage on your home for a tax break.
What you need to be careful with is using your savings to pay off your mortgage in this uncertain economy. Look carefully at your job security, health and what would happen if you lost your job. You never know when you will need to utilize your emergency funds. If you pay off your mortgage, you might have to sell the house or borrow against it if your emergency funds are depleted. Ensure that you are saving for retirement and maintaining an emergency fund before considering paying off your mortgage.
Turbo Tax And Mortgage Tax Deductions by Steve