Should you pay off a mortgage early? One of the arguments against doing so is that you may be able to earn more by investing your money instead of making the extra mortgage payments.

On one level it makes sense. After all, if you could earn an average of 10% a year by investing in a mutual fund or something, you would end up with more money than you would by paying off a mortgage with a 6% interest rate. The only problem with that strategy is that the 10% possible annual earnings in an investment is not guaranteed. Earning 6% by paying off a mortgage early is guaranteed (Yes, I'm well aware of the home mortgage interest tax deduction. But you pay taxes on investment earnings as well).

The only risk free rate of return is considered to be the three-month U.S. Treasury Bill rate. The interest rate for the three-month T-Bill is currently less than 4%. Anything you try to earn above 4% involves a certain amount of risk. I know as well as anyone that you have to take risks to be successful. However, it's even easier to take risks on your investments if you own a home free and clear. So, by all means, take risks to get a higher rate of return on your investments, but your primary residence is not an investment. It's a place to live. And when it comes to your home, do the sure thing by paying off your mortgage.

There is another good reason for paying off a mortgage early, and it can't be quantified. It's the psychological factor of being completely debt-free, including your mortgage. It's a liberating feeling that's hard to describe unless you've done it. And the longer I'm in the financial arena the more I appreciate the fact that the emotional satisfaction of what someone does with money is much more important than just simply crunching numbers.

(c) Larry Holmes