Calculating average mortgage balance

This is a simple question--I'm just having trouble finding a concrete answer in the code.

If a mortgage is paid off before the end of a tax year, we would use the balance of the mortgage right before the payoff to calculate the average balance, correct? We wouldn't use 0 as the ending balance, right? Pub 936 says: "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)."

I mean one could read that to say the balance was zero on the last day but that makes no logical sense to me. I'm just looking for more official concrete language that you use the balance before the payoff.

thanks!

If a mortgage is paid off before the end of a tax year, we would use the balance of the mortgage right before the payoff to calculate the average balance, correct?

Correct. Reg. 1.163-10T(h)(3), (4) and (5) seem to support this.

You cannot use the average balance method if you have new amounts borrowed. Exact method (vs simple method) would probably be the best method.

(5) Average balance computed using average of beginning and ending balances -

(i) In general. If -

(A) A debt requires level payments at fixed equal intervals (e.g., monthly, quarterly) no less often than semi-annually during the taxable year,

(B) The taxpayer prepays no more than one month's principal on the debt during the taxable year, and

(C) No new amounts are borrowed on the debt during the taxable year,

https://www.law.cornell.edu/cfr/text/26/1.163-10T