Pay off house and pay less mortgage interest or save in bank?

Rule #1) You never want to pay interest just because of the tax deduction. Rule #2) Don't forget Rule #1) That being said, there probably is not a right or wrong answer to this question. It all depends on the person. Personally, I pay extra principal every month AND I invest every spare dime that I have.

Do not make this decision based on taxes! If you want to reduce your mortgage faster, make an extra principal payment each month, thus paying off a 30 yr in about 15. By using this money to pay down mortgage, you won't have access to it if you need it, i.e. lose job, prolonged illness etc. My advise is if you have at least 3-4 months income in savings already, then use this $$ for the mortgage, otherwise, use it for investing. The market is down so there are a lot of bargains to be had, especially in the real estate market. Maybe look for a good rental property.

In a nutshell, if you can earn a higher percentage return on the money than you are paying in interest on your mortgage, you are better off investing and keeping the tax deduction for interest.

I will pay off home mortgage. Once home is paid, a major part of your financial worries are over.

It all depends if your interest rate on your mortgage is higher than the interest you would get if you invest your money. Furthermore, it also matters whether the interest on your proposed investment is tax deferred. If you put the $ into a retirement account, it would be tax deferred. Call an accountant to get professional advice. Also, you state that if you paid off your mortgage, you wouldn't have a lot to deduct for taxes. This doesn't make any sense, because you can deduct your taxes even if you don't have a mortgage. It is the interest deduction you would lose if you paid your mortgage off, and that would be great--because you would have pure equity.

We are going through a similar situation now. We owe only $70,000 on our house worth $290,000 (our market is stable, no drop here), and now we are regretting putting such a large down payment! We do have the cash if we wanted to pay it off, but now we are 6 years into our 15 year mortgage, and I wish that we only put $100,000 down and had even more in the bank instead. What if there is a disaster, like the recent flooding as an example, and you cannot sell your house and are stuck with less savings and lose it all? Of course we have homeowners insurance, but my brother's home burned down ten years ago, and he ended up losing $100,000 on it since it cost more to rebuild than what he was insured for. If you have a decent rate on a fixed rate mortgage, I personally would just keep paying it as is for now, keep a large cushion in case of job loss or illness. We do not have anything extra to deduct either since our taxes here are low, plus our interest rate is so low (4.7% fixed). So we are kind of in the same boat, but I am thinking the opposite side of you! If I were you and had extra cash, I would put it in a low cost index fund, such as Vanguard, and save for the long term, if you were pretty sure you would not need the cash soon. In the long term (20 years) it will be a stable investment, you won't make that type of return on cash in your home. I agree with Tommy B above.