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Average Mortgage Balance: Home Mortgage Interest Deductions (2025 IRS Guide)

This guide covers “Average Mortgage Balance” within home mortgage interest deductions. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 936 (2025), Home Mortgage Interest Deduction, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

You can deduct all of the interest you paid during the year on mortgages secured by your main home or second home in either of the following two situations.

  • All the mortgages are grandfathered debt.

  • The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt.

Average Mortgage Balance

You have to figure the average balance of each mortgage to determine your qualified loan limit. You need these amounts to complete lines 1, 2, 7, and 12 of Table 1. You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. The following are methods you can use to figure your average mortgage balances. However, if a mortgage has more than one category of debt, see Mixed-use mortgages, later, in this section.

Average of first and last balance method.

You can use this method if all the following apply.

  • You didn't borrow any new amounts on the mortgage during the year. (This doesn't include borrowing the original mortgage amount.)

  • You didn't prepay more than 1 month's principal during the year. (This includes prepayment by refinancing your home or by applying proceeds from its sale.)

  • You had to make level payments at fixed equal intervals on at least a semi-annual basis. You treat your payments as level even if they were adjusted from time to time because of changes in the interest rate.

To figure your average balance, complete the following worksheet.

1. Enter the balance as of the first day of the year that the mortgage was secured by your qualified home during the year (generally, January 1) _____
2. Enter the balance as of the last day of the year that the mortgage was secured by your qualified home during the year (generally, December 31) _____
3. Add amounts on lines 1 and 2 _____
4. Divide the amount on line 3 by 2.0. Enter the result _____

Interest paid divided by interest rate method.

You can use this method if at all times in 2025 the mortgage was secured by your qualified home and the interest was paid at least monthly.

Complete the following worksheet to figure your average balance.

1. Enter the interest paid in 2025. Don't include points, or any interest paid in 2025 that is for a year after 2025. However, do include interest that is for 2025 but was paid in an earlier year _____
2. Enter the annual interest rate on the mortgage. If the interest rate varied in 2025, use the lowest rate for the year _____
3. Divide the amount on line 1 by the amount on line 2. Enter the result _____

Example.

You had a mortgage secured by your main home all year. You paid interest of $2,500 on this loan. The interest rate on the loan was 9% (0.09) all year. Your average balance using this method is $27,778, figured as follows.

1. Enter the interest paid in 2025. Don’t include points, mortgage insurance premiums, or any interest paid in 2025 that is for a year after 2025. However, do include interest that is for 2025 but was paid in an earlier year $2,500
2. Enter the annual interest rate on the mortgage. If the interest rate varied in 2025, use the lowest rate for the year 0.09
3. Divide the amount on line 1 by the amount on line 2. Enter the result $27,778

Statements provided by your lender.

If you receive monthly statements showing the closing balance or the average balance for the month, you can use either to figure your average balance for the year. You can treat the balance as zero for any month the mortgage wasn't secured by your qualified home.

For each mortgage, figure your average balance by adding your monthly closing or average balances and dividing that total by the number of months the home secured by that mortgage was a qualified home during the year.

If your lender can give you your average balance for the year, you can use that amount.

Example.

You had a home loan secured by your main home all year. You received monthly statements showing your average balance for each month. You can figure your average balance for the year by adding your monthly average balances and dividing the total by 12.

Mixed-use mortgages.

A mixed-use mortgage is a loan that consists of more than one of the three categories of debt (grandfathered debt, home acquisition debt, and home equity debt). For example, a mortgage you took out during the year is a mixed-use mortgage if you used its proceeds partly to refinance a mortgage that you took out in an earlier year to buy your home (home acquisition debt) and partly to buy a car (home equity debt).

Complete lines 1, 2, and 7 of Table 1 by including the separate average balances of any grandfathered debt and home acquisition debt (determined by the date the debt was acquired) in your mixed-use mortgage. Don’t use the methods described earlier in this section to figure the average balance of either category. Instead, for each category, use the following method.

  1. Figure the balance of that category of debt for each month. This is the amount of the loan proceeds allocated to that category, reduced by your principal payments on the mortgage previously applied to that category. Principal payments on a mixed-use mortgage are applied in full to each category of debt, until its balance is zero, in the following order.

    1. First, any home equity debt not used to buy, build, or substantially improve the home.

    2. Next, any grandfathered debt.

    3. Finally, any home acquisition debt.

  2. Add together the monthly balances figured for b and c in (1).

Complete line 12 of Table 1 using the figure from line 2 above.

Example 1.

In 1986, you took out a first mortgage of $1,400,000. The mortgage was a 10-year balloon note and the entire balance on the note was due in 1996. You refinanced the debt in 1996 with a new 30-year mortgage (grandfathered debt). On March 2, 2025, when the home had a fair market value of $1,700,000 and you owed $500,000 on the mortgage, you took out a second mortgage for $200,000. You used $180,000 of the proceeds to make substantial improvements to your home (home acquisition debt) and the remaining $20,000 to buy a car (home equity debt). Under the loan agreement, you must make principal payments of $1,000 at the end of each month. During 2025, your principal payments on the second mortgage totaled $10,000.

To complete Table 1, line 7, you must figure a separate average balance for the part of your second mortgage that is home acquisition debt. The January and February balances were zero. The March through December balances were all $180,000 because none of your principal payments are applied to the home acquisition debt. (They are all applied to the home equity debt, reducing it to $10,000 [$20,000 − $10,000].) The monthly balances of the home acquisition debt total $1,800,000 ($180,000 × 10). Therefore, the average balance of the home acquisition debt for 2025 was $150,000 ($1,800,000 ÷ 12).

Example 2.

The facts are the same as in Example 1. In 2026, your January through October principal payments on your second mortgage are applied to the home equity debt, reducing it to zero. The balance of the home acquisition debt remains $180,000 for each of those months. Because your November and December principal payments are applied to the home acquisition debt, the November balance is $179,000 ($180,000 − $1,000) and the December balance is $178,000 ($180,000 − $2,000). The monthly balances total $2,157,000 [($180,000 × 10) + $179,000 + $178,000]. Therefore, the average balance of the home acquisition debt for 2026 is $179,750 ($2,157,000 ÷ 12).

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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