Should you prepay your mortgage?

Analysis |

Getting out of debt has become a popular goal lately, but is your mortgage still a debt you want to keep?

Financial planners have long argued against prematurely paying off mortgages because the interest payments can be deducted from income taxes. The cash you'd use to pay off your loan also could instead be invested to earn returns high enough to offset the 5 or 6 percent interest rate on a typical mortgage loan.

But faced with treacherous stock markets and stubbornly low yields on CDs and Treasurys, getting rid of a 5 or 6 percent mortgage payment may put you ahead.

Boston-based financial adviser Larry Glazer tells risk-averse clients vexed by the lack of good investment choices to consider paying off their mortgage. "It's sort of a less-than-textbook strategy, but it makes a lot of practical sense for some people."

Even the tax-deduction argument may hold less water than it used to, depending on where you live. Some states have set caps on the amount of mortgage interest you can deduct on income taxes.

So how do you tell if paying it off will pay off for you? Start by seeing whether you fit into one of the categories above, then make sure to check if your bank charges penalties for early repayment.