One of the hottest topics of debate in personal finance management is - whether to pay off your mortgage or make long term investments with your spare cash? It is a very complex question and the answer is not simple and depends on a large number of factors. The following article would provide an overview of the options as well as their advantages and disadvantages so that you may decide your financial option as per your convenience.

Advantages of pre-paying the mortgage:

•One of the brightest sides of paying off your mortgage early is your mental peace. For majority of people, the sense of financial security is priceless and it relieves them from their daily financial stress. You also get released from your financial obligation.
•Also, paying off early provides a guaranteed return as you end up saving the huge amount of interest you would have paid throughout the long years of the amortization schedule. The rate of interest in investments (say, investments in stock market) may be much higher but, they cannot assure you a guaranteed return as some financial risks are always associated with such investments.
•Another important aspect of paying off mortgage early is based on sheer human behavior. You might decide to pay the monthly mortgage payment and make regular investments with the spare money. But, you may totally neglect and forget the investment part. You may keep it pending for many months as well as years. Hence, paying off early mortgage provides a secure investment and safe return.

Disadvantages of pre-paying mortgage and hence, advantages of investments:

•One of the down sides of paying off mortgage early is - generally, the mortgage interest rate is quite low and also, the interest payments on a mortgage are mostly tax deductible. Hence, you might lose the chance of making more profit with higher rates of interest as well as higher investment returns. For example, making a sound profit of 8-10% interest rate in investments is a much better choice than paying off a 5% mortgage loan.
•Another important factor is the gradual inflation. In the long run, due to the decrease in the currency value, the present monthly mortgage payment would effectively cost much less than today and that amount of money would not be worth as much the real 'buying power' any more.
•Also, pre-payment does not earn you any favors from the bank and thus, affects your financial liquidity. In case of financial emergency, you must need sufficient financial cushion to fall back. Investments would provide you the cushion. For a better financial stability, it is always advised to spread out the money.

Hence, paying off early or investing - the decision is completely on the borrower. But, he/she must attend certain factors before choosing any of them. The factors are - rate of mortgage interest, rate of investment returns, sufficient emergency fund, funds in retirement savings and tax- advantage funds and his/her financial stability.