Tax Benefits

• The mortgage interest deduction yields a sizable amount of income tax savings in many circumstances. Taxpayers who itemize may claim a deduction for their mortgage interest on a first and second home loan with combined balances of up to $1 million. This deduction results in a benefit of the marginal tax rate times your mortgage interest deduction. If your mortgage balance or interest rate is low, the mortgage interest deduction may not exceed the value of the standard deduction available to every taxpayer. For married couples filing jointly as of 2011, that amount is $11,600.
  
  

Investment Opportunity

• If you have borrowed money with your mortgage at a fairly low interest rate, you may be able to invest money that you would use to prepay your mortgage into an investment paying a higher rate of return than the interest rate on the mortgage. Over time, this could result in a larger gain than the potential interest savings from paying off the mortgage early.
  
  

Risk

• If you carry a mortgage on your home, you have an increased risk of losing that home to foreclosure if economic conditions grow worse, and you are unable to make your payments. You alone must decide if the risk is worth it to you. While your financial situation may appear fine now, it is possible that it could significantly worsen in the future. If your home is paid off, you could withstand future financial problems with fewer problems.
  
  

Extra Available Funds

• If you are moving towards retirement, paying off your mortgage early may make more sense. You will immediately see a reduction in your expenses when the mortgage is paid off, and that money can be used to pay other living expenses. Having this available income may allow you to delay withdrawing money from your retirement savings, allowing this money to grow for a longer period of time. The longer you put off withdrawing from retirement savings, the greater the chance that you will not run out of money in retirement.