Your method for calculating average balance appears to be sound. However, you may wish to compare the results when using the weighted-average method, which may allow you a greater interest deduction. See IRS Pub 936 Statements Provided by Your Lender.
Weighted average takes into account the number of months a loan was active during the year. As a shortcut, you can use your average (first + last / 2) and multiply it by number of months / 12. For example, if your NC loan was active for 5 months, the weighted average would be 385,000 x 5/12 = 160,416.
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