Q: I wonder if you are not brainwashed by mortgage bankers, and in turn are performing the same service to your readers regarding the advantage purported to result from large residential mortgages in nearly all situations. It appears to stem from looking only at one side of the equation, namely, the saving in income tax.

Say I sell my home and buy a replacement. I have the option of reinvesting the entire proceeds plus a bit more from the sale of stocks to move into a mortgage-free house, or I can obtain a maximum mortgage. (Assume of course, that adequate liquid assets remain to cover medical emergencies, etc.)

Under the first option I am, in effect, investing in real estate and thereby earning the current mortgage rate, say 11 percent (which, by the way, is substantially better than those stocks I would sell). For example, let us assume the new residence total cost was $80,000. According to conventional advice, I should obtain a $70,000 mortgage and invest my assets elsewhere.

A conservative investment might net me 9 percent. Thus I have incurred a cost of 2 percent on $70,000. This gives me a $1,400 deduction from my gross income for tax purposes - with a 25 percent tax bracket, my net out-of-pocket cost is reduced to $1,050.

The advantage of a lower income tax bracket is a chimera. In this example, the gross income is not reduced by 11 percent of $70,000 (as implied by conventional advice). Rather it is reduced only by 2 percent of the $70,000, that is, by $1,400. And regardless of tax bracket, most of the $1,400 is net loss.

Where is the big advantage - except to mortgage banks?

A: What you say (in a very rational, articulate way makes sense, on the surface. There are three reasons, at least, why it doesn't make actual sense.

First: As you imply, there's a tax benefit "off the top," so to speak. But of the three items, it's the least helpful because it's simply a deduction from gross income (or adjusted gross income). It isn't a credit against the actual income tax you pay. It helps, but not as much as the other two items help.

Second: Your true mortgage interest rate isn't 11 percent. It's 8 1/4 percent, using your figures (an 11 percent mortgage interest rate, a 25 percent tax bracket). Here's the way you compute your true mortgage interest rate.

Estimate your combined federal and state income tax bracket. You say it's 25 percent. (You can get a reasonably accurate tax rate bracket by checking the tax rate schedule on your income tax return.) Now, multiply that tax bracket by the interest rate on your mortgage. You say it's 11 percent. Then, subtract that figure from your mortgage interest rate. This gives you your after-tax mortgage interest rate.

Here's the result, using your figures: 25 percent (tax bracket) times 11 percent (mortgage interest rate) equals 2 3/4 percent; 11 percent minus 2 3/4 percent equals 8 1/4 percent.

The higher your tax bracket, the less your true mortgage interest rate. For example, if you're in the 35 percent tax bracket (combined federal and state) and your mortgage interest rate is 11 percent, your true mortgage interest rate is 7.15 percent.

Third (and the clincher): our inflationary economy. Largely not entirely, perhaps) because of inflation the value of your house is probably increasing 10 to 14 percent compounded per year in this area presently. If your money is costing you 11 percent, the money you'll receive when you sell your house exceeds the money you're spending in interest, by a comfortable margin. Unfortunately, your profit is illusory if you intend to continue to live in the house indefinitely. Even worse, if your assessment and real estate taxes increase in step with the "increasing value" of your house, because of the inflation rate, you're actually spending more dollars. But that doesn't affect the situation regarding the cost of your mortgage money.

There are two things, at least, that could make it financially wise to do something along the lines you suggest. One is if variable rate mortgages (VRMs) become virtually mandatory for one reason or another.

But this isn't absolutely certain. An upper-interest-rate limit is imposed, and the frequency with which the rate may be increased is governed. The second is if we get into a solid deflationary economy (as we did from 1929 to 1941, for example).

One final word, please. I've never been one to suggest blindly getting a mortgage for as much as you can and investing your money elsewhere.

I've always advocated some careful computations to see where you'll do better. In addition, I've pointed out that, whatever the financial results of a large mortgage, if you're a person who wants a mortgage-free home and can swing it, you're probably better off using your money to attain a mortgage free home.