Owning a home is a dream shared by every financially capable person. However, having a mortgage can be a huge burden, and paying it off may be the first item on your financial to-do list. But competing with the desire to own your home free and clear your mortgage is your need to invest for retirement, your child’s college education, or some other goal. Putting extra cash toward one of these goals may mean sacrificing another.

Deciding between prepaying your mortgage and investing your extra cash isn’t easy, because each option has advantages and disadvantages. But you can start by weighing what you’ll gain financially by choosing one option against what you’ll give up.

In a world without emotional or behavioral biases where we all rationally evaluate the economics and make choices based on probability-weighted outcomes, the math points to investing over debt elimination.

Yet the mortgage decision is rarely ever this simple. It depends on your specific situation – your tax rate, portfolio allocation, and credit history, propensity to save and risk tolerance.

From a purely quantitative standpoint, the economic benefit to maintaining a mortgage and investing the difference is significant for most homeowners over the past several decades.

Let’s take a too at some of the drawbacks of paying off the mortgage. If you decide to pay off your mortgage you will have to pay less interest rate and you will get rid of mortgage insurance. You can sell your home more easily and there will be less risk of losing money in the stock market or elsewhere.

On the other hand if we take a look at the disadvantages of investing instead it can make for greater long-term returns as well as investment gains can exceed return on mortgage.

The key is really finding a balance. There’s no rule for how much you need to pay other than your payment due. You can make an extra payment here and there or look into biweekly mortgage payments, or just pay on schedule and spread your money around as needed.

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