Mortgage Payoff Attracts Heated Debate

For most of us, our home is the biggest investment we'll ever make. Likewise, the accompanying mortgage is the largest debt we'll ever take on.

But how fast should we strive to pay it off? Is it good planning to be mortgage free upon retirement? With financial markets faring so poorly these days, why not pay down your loan for a surefire 5% or 6% return?

There's no consensus in this frequently and hotly debated question.

Financial author and guru Suze Orman says to make it your No. 1 priority to have your mortgage paid off by the time you retire.

Bert Whitehead, attorney, crusading fee-only financial planner and head of Cambridge Advisors network, however, advocates keeping the mortgage, taking the tax write-off and using any excess cash in more productive ways.

Eric Tyson, author of Personal Finance for Dummies sums it up this way: Paying down your mortgage is "investing your money in a sure thing with a modest return."

Here's what he means. If you have a 6% mortgage and you're in the 35% combined federal and state tax bracket, paying off your mortgage early gives you a return on your money of 3.9 %. However, if you invest that cash in the stock market for the long term, more than 10 years, you should earn 10% pretax and 6.5% after taxes -- a difference of 2.6 percentage points.

The difference is even greater if you plough your excess cash into a tax-advantaged account, such as a 401(k), individual retirement or college savings account.

"If we just look at the simple math," says Sheryl Rowling, CPA and certified finance specialist with Rowling, Dold & Associates LLP in San Diego, "you're better off with a 30-year mortgage and investing the money." And it doesn't matter what the markets are doing now, she says, it's how investments will perform over the long run.