When To Paydown A Mortgage

Retirement Watch readers should already know how to analyze the issue, but this article is a good presentation of the issues and how to decide on the best use of your money.

The key question to ask when weighing mortgage paydown is what you’d do with that money instead. Can you earn a higher return somewhere else than you could with mortgage paydown?

At the risk of stating the obvious, paying down any other debt with higher interest rates should precede mortgage paydown, because the return on investment is guaranteed to be higher. Thus, paying down home equity loans/balances on home equity lines of credit should usually come before mortgage paydown, because their rates are invariably higher

But what if you have no other debt and your alternative to mortgage paydown is to invest in something? Because prepaying your mortgage is guaranteed to earn you whatever your mortgage rate is, less the amount of any tax breaks you’re receiving, only guaranteed investments count for an apples-to-apples comparison with mortgage paydown.