We are a two physician family, aged 40 and 38. We refinanced a year ago to two mortgages -- the first for the 417k cap at 4.5% for a 10 year mortgage and a second mortgage of 75,000 at 5.99% (25 year). We've paid off a chunk of the second mortgage over the past year and the principal is now down to 47,000; we'll probably pay this high interest loan off in full in the next two years.

The reason we changed the first mortgage to a 10 year one is that we thought we would like to be mortgage- free by the time we started paying private school tuition for high school (we have 2 kids, ages 3.5 and 1.5 years old).

Is this a reasonable strategy? It would be great to be mortgage-free by the time heavy tuition payments hit us, but I second-guessed myself recently thinking that we will be hit hard by taxes once we finish paying off the mortgage. Any thoughts are welcome.

Zip Code: 02114

I get this question all the time. The problem is that people generally just focus on the tax deduction that they get by paying mortage interest.

Even when the top rate reverts to 39.6% in 2001, each $1 of mortgage interest you pay saves you $.396 in taxes. So wouldn't you be better off not to pay the $1 in interest, pay an extra $.40 in taxes, and put the remaining $.60 in your pocket?

Don't get me wrong. The mortgage interest deduction is a great deduction. And if you can invest your money, and get a better return than you are paying on your mortgage without taking on any additional risk, then you would probably be better to do so.

That being said, I am not a fan of having a mortgage for the sake of having the tax deduction. I've seen many clients over the years keep money in a savings account with a bank earning a token amount of interest, and then paying that same bank more than double that interest on their mortgage. The bank loves these type of customers.

Finally, with the ease of maintaining an equity line of credit, you can always re-borrow money against your home equity if you need to do so in the future.

Zip Code: 01801

That makes a whole lot of sense. Thanks

Zip Code: 02114