SOLVED: Should I Pay Down My Mortgage?

Can you get a better return on your money elsewhere?

By Kimberly Lankford, Contributing Editor

From Kiplinger's Personal Finance magazine, September 2006

These days, there's rarely a reason to rush to pay off your mortgage early. Paying down a loan with a 5.75% rate is the equivalent of earning 5.75% on your money, and you should be able to get a better return elsewhere.

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Money that you invest is also accessible. Paying more toward your mortgage may help you pay off the loan earlier, but perhaps not for a decade or longer. Meanwhile, you can't touch your money unless you borrow against your home equity or sell the house. "By investing the extra money, you have a pile of cash to draw on if you were to lose your job, for example," says Stuart Ritter, a financial planner with T. Rowe Price.

Putting additional money toward your mortgage makes more sense as you get close to paying off the loan -- especially if you're nearing retirement. "If you only have $20,000 or $40,000 left on the loan, paying it off will give you a psychological lift," says Michael Eisenberg, a CPA and financial adviser in Los Angeles.

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