The Under 40 Financial Planning Guide: Buy a Home

This is discussed in much greater detail in Part Eight. Because you are permitted to deduct most of your mortgage payment, the government in effect pays for a part of your mortgage. For instance, if you are taxed at a rate of 30 percent, and you have a mortgage payment of $2,000, you are actually paying about $1,400 per month, and the IRS is reducing your taxes by $600. In effect, they're subsidizing your mortgage! They'll also let you deduct the real estate taxes you'll pay on your home, and other expenses related to the purchase.

If you are buying a new home, you can even deduct the full amount of "points" you pay to your lender. When you refinance, points are deductible equally over the life of the loan, but if you re-refinance you can deduct any leftover points from a prior loan that you have not yet deducted.