The Age-Old Quandary: To Prepay Your Mortgage or to Invest

As the market has exited from our worry screen at least temporarily, let's take a moment to ask the burning question: "Should you pay off your mortgage early?"

This is not only an investment decision, it is also a subjective personal decision about our home. And that's what makes it so difficult. We're talking about where we sleep, eat, interact, and entertain and are protected from cold, heat and storms. Our home may be the only environment that we can totally control. The decision is so personal that only you -- no financial advisor -- can make it.

The investment part of the decision is easier to map: Do you think the return on your investments will exceed the money you could save paying down the mortgage, and is that return worth the market risk? You will probably end up wondering whether you can make more in the market, and with days like Tuesday, you'll conclude that you shouldn't pay off the mortgage. At this level, the discussion is much like the one we had in my earlier column on taking on a bigger mortgage to invest.

There is a difference, however, and for most people, it's a practical one. Most people already have a mortgage on a home -- it's not a matter of taking on more debt. Once the mortgage exists, the question then becomes whether we can pay it off early. At some point in our lives, we are hopefully making more money and can afford to start paying off the mortgage at a more rapid rate. Should we do that, or should we invest the money elsewhere? The investment side of the equation presents several points: Refinancing at a Better Rate ...