I’ve been getting a lot of questions lately about whether or not you should pay off your mortgage early.  The bottom line: It depends.  From a purely financial perspective, having a 3.5% interest rate mortgage locked in at 15 years, getting a tax deduction, and watching your income keep pace with 4% inflation means that your real cost of borrowing is negative.  That is, you are actually getting paid to not pay off your mortgage.

On the other hand, people are not purely rational financial beings.  There are certain risks they don’t want to take.  What if you lose a job?  What if you are injured and can’t work?  What if your spouse passes away?  What if you have a child that is born with expensive special needs?  The emotional contentment that comes from not owing money to a bank, and knowing your home can’t be taken away as long as you pay your property tax records, is valuable.

Personally?  I tell most people they are better off wiping out the debt as long as they don’t strain their liquidity too much.  Most people will do something stupid if they amass a lot of cash – either make foolish investments or spend the money.  Those are far more tolerable if you own your home outright.

To Pay Off Your Mortgage Early or Not To Pay Off Your Mortgage Early? originally appeared on About.com Investing for Beginners on Saturday, December 31st, 2011 at 18:29:18.