The ending balance used in the Average of First and Last Balance averaging method is defined in Pub 936 as: 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). In my opinion, your mortgage is no longer secured on the day it is paid off. This means the last day the mortgage was secured is the day preceding payoff. Consider that using $0 as the ending balance artificially inflates your % deduction over what you received on both mortgages on your 2023 return.
