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If the late fees are characterized as interest they will be fully deductible as mortgage interest. Easy way to find out - look at last year's mortgage statement (Form 1098) that you receive from the lender. It will have a line for late fees on it somewhere. If that is shown just below interest (does not matter if it was zero last year for this purpose) then it will be the same this year and deductible. In the vast majority of instances it is recorded as interest. Just be sure your follows this and you will be all set.