If you’re like most homeowners, your biggest monthly expense is most likely your mortgage.   When you’re putting a big chunk of your income toward one bill like that it’s only natural to want to see it disappear as quickly as possible.  But is it a good idea to pay your mortgage off early, or are there better ways to make use of your money?

Let’s take a closer look at the pros and cons of paying off your mortgage early so you can make an informed decision…

The biggest benefit of paying off your mortgage early is the peace of mind it gives you.  Owing someone a quarter of a million dollars can feel like a giant weight bearing down on your shoulders.  Even if you can comfortably afford the monthly payments, you might just hate the very idea of being in debt.   And as you get older you’ll be grateful that you don’t have to tap into your retirement savings every month to cover the mortgage.  Also, once your mortgage is paid off you can do whatever you want with the money that had been earmarked.

On the other hand, paying down your mortgage early may not be the most efficient way to use your money.  For example, let’s say the interest rate on your mortgage is four percent.  By paying it off early you’re effectively earning 4% on your money.  In today’s economy, that’s not necessarily bad.  But what if you had put that money into a Roth IRA where it could grow for decades and earn you much more than 4%?  Saving a few thousand dollars in mortgage interest charges could end up costing you tens of thousands in the long run.

The same idea holds true when it comes to other types of debt.  To pay the least amount of interest, you should focus on paying off the debt with the highest interest rates first.  With mortgage rates at historically low levels, it’s unlikely that your home loan is your most expensive debt.  If you’re paying 5% on your mortgage but your credit cards are costing you 15%, you’d be foolish to pay down your mortgage before eliminating your credit card debt.

Something else to consider before paying down your mortgage is whether you want to risk being house rich but cash poor.  If you take all of your cash and put it into your house you may not have enough liquid funds to cover unexpected expenses, or you could have to live off less than you expected in retirement.  Seniors who end up caught in this position often end up taking out reverse mortgages which are not only costly in terms of fees and interest charges, they also reduce your equity in your home.

It’s hard to put a price on the peace of mind you’ll get from not having to make monthly a mortgage payment.  Owning your home outright can be very liberating, especially as you get closer to retirement.  But think carefully before you start sending extra money to pay your mortgage off early because for most people there are more efficient ways to put your money to work for you.