Should You Pay Down Your Mortgage?

No.

There's only one reason to pay down your mortgage - you can afford that luxury.

Interest rates are still at historical lows. A 30-year fixed is at 4.125%. When you bake in the mortgage interest deduction, the rate is closer to 2.5%.

So when you pay down your mortgage, you are locking in a 2.5% rate of return.

Where will that money come from? From under your mattress or from your long-term money?

If you're doing it right, your long-term money should earn 7-10% (depending on if you're invested conservatively or aggressively).

What sounds better to you? A 2.5% return or a 10% return?

Now if you're so rich that your college and retirement (and vacation home?) buckets are already filled and you really don't need that extra 7.5%, then by all means chip away at the right side of your balance sheet.

But if you're like the rest of us, you probably can't afford to throw 7.5% out the window.

Of course there are exceptions to the rule, so talk to your financial advisor. But start with the premise that you want a nice, looong, low-interest mortgage that you don't pay down a penny faster than you have to.

DISCLAIMER:  This publication is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.