If you’re a homeowner and have ever wondered whether or not it is a good idea to put some extra cash toward your mortgage, should you happen to have some, then this post is for you! By putting extra cash toward your mortgage homeowners are essentially decreasing the share owned by their lender. "Isn’t this the idea", you might ask? Well, yes and no. Let me explain…

A recent working paper published by the Federal Reserve Bank of Chicago examines the question, "is it smart to squirrel away savings in your home?"  This study reviewed the options thoroughly and showed that regarding the two most important financial decisions people make involving saving for retirement and purchasing and investing in a home, the best decision is to contribute to a retirement plan in full before even thinking about prepaying your mortgage.

The study also showed that approximately 3.4 million households don’t contribute at all to their retirement but do prepay their mortgage. Unfortunately, those households are losing 11 to 17 cents for each dollar they put into a faster mortgage payoff.This is a result of the fact that after-tax mortgage rates are usually less than the return in a 401(K) or investment account. 

If you are considering  prepaying take some time to weigh the maximum amount of interest savings of a shorter mortgage against the projected growth of the same dollar invested somewhere else. With these options to consider there’s really no reason not to keep your financial planner busy with the details after all, they work for you.