We'll use round numbers to make it easy. You do know what round numbers are, don't you?
Okay. Let's start.
Let's say your mortgage is $1,000.
There are 12 months in a year. With me so far?
12 x $1,000 (that little "x" represents "multiplied by" or "times") = $12,000. Write that number down somewhere. We will be coming back to it.
Still following?
Now, let's say the interest on that payment is $500.
Take that and multiply it by 12 and write that number down.
Now, subtract that number from the first number, $12,000.
Which number would your rather have in your bank account?
I must leave for work now, so you have 10 hours to work on this.
I'll be back to grade your answer tonight.
The only way your logic works is if you live out of your car!
Using your math, you are paying $500 a month for interest, which is tax deductable, so say it really costs you about $400. And you are paying $500 a month for your house (does that include taxes and insurance, which would bring it down to about $250 a month, or are you figuring the full $500 for principal reduction?
Now go take that $500 (or perhaps $250) and see what kind of apartment you can rent with that.
And, if you bought that house in 1989, it has probably tripled in value. If you bought it in 2008, it may, depending on where you bought it, doubled in value.
So for less than the cost of a decent apartment, you have an asset which might have been worth $100,000 when you bought it worth $200 - $300,000 today.
Since the mortgage portion is loaded on the front end (your last payment would be almost all principal, the first payment almost all mortgage) You’ve probably milked most of the tax benefit out of the property if half and half on the p & i. If the taxes and insurance are coming out of the non-interest portion, then you probably should let it ride some more.
On the other hand, if you are living in a $250 - $500 a month apartment, you are building no equity, may not be in a position to itemize (unless you give heavily to your church), and you have to worry about your neighbors.
For most folks, the formula that makes the most sense is a 30 year mortgage than you pay off in 15, and from which you get 8-10 years of tax deductions. Then at the 15 years you own an appreciated property (real estate has certainly outperformed gold or oil over the last decade) with the only burdens being taxes and insurance. (And on the insurance, since you no longer have a mortgage, you can assume the level of risk with which you feel comfortable.)
Take as long to think about it as you need.