Paying Off Your Mortgage A good rule of thumb is that you should prepay the mortgage if you expect to earn less after-tax on your investments then the effective interest rate on your mortgage. So where do you plan to invest the proceeds from the sale of the inherited property? If you can use the mortgage interest deduction on your federal income taxes, again assuming you’re in the 25 percent marginal federal income tax bracket, you’re effectively paying 4.5 percent on your mortgage. I’m ignoring state and/or local income taxes in this example.

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