Having a mortgage on your primary residence is often touted as "the last great tax break for the common man." While that may be true, I would like to introduce you to a more fiscally savvy method of saving money in the process of owning your own home.

Interest Tax Deduction

The interest tax deduction is cited as a great reason to take out and keep a mortgage on your primary residence. This is how it works.

Each year you pay interest on your mortgage, you can deduct that amount from your Adjusted Gross Income (AGI). For instance, if you paid $8,000 in mortgage interest last year, and your AGI for the same year was $70,000, you would pay taxes on $62,000 instead of $70,000. At a tax bracket of 28%, that would mean you saved $2,240 on your taxes. Sounds good, no?

Other Options?

What other options exist alongside having a mortgage on your home? One is to pay it off early and have no debt on your primary residence.

Wait, wouldn't that eliminate this wonderful tax break? Wouldn't that be throwing money away? Let's go back to the original example. In that example, you paid $8,000 in mortgage interest. That $8,000 did not go towards building equity in your home, it went directly to the bank. The IRS gave you back $2,240 of that $8,000 in the form of a tax deduction. Now, let's see.

That means you paid out $8,000 to the bank in order to get back $2,240 from the IRS. Imagine this as an investment. Would you invest in a mutual fund that was guaranteed to lose 72% every year? Of course not!

If you owned your own home outright, you would keep that $8,000 in your pocket instead of sending it to the bank. You lose the $2,240 tax deduction, but you are still ahead by a net of $5,760 by owning outright.

Argument: I Could Invest and Make More!

This is a myth which I am going to debunk right now. Those who use this rationale are thinking in an unsophisticated, nave manner. Here is an example of their argument.

If I invest the $2,240 I saved on the mortgage tax deduction in the stock market, I could make a 13% return on that money (very optimistic). If I put it towards the mortgage at a 7% mortgage interest rate, that's 6% less.

There are 3 major pieces of information being left out of this nave calculation.

Missing Piece #1

The argument does not take taxes into consideration. When you cash out that mutual fund, you are going to pay a tax on the gains. If you leave it in there for more than a year, it would

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