Pay down Mortgage or Invest in 401K ?

to save only 2 1/2 years on the mortgage vs putting the funds into your 401k (I assume by your question you are not currently maing out your contributions), put the money into your own account first, as your return will be higher long term by investing it. Also, you sound like you will need the extra interest payments if you have no other deductions, so consider the tax benefits of reducing your taxable income and the full mortgage interest. Plues, what happens if you cannot make that extra little payment because something happens, you may need that cash.

Good Luck

First, it is absolutely excellent that you are maxing out your 401(k) contributions and receiving matching funds from your employer. Right there you are saving wonderfully for retirement.

Now having said that you cannot receive any additional deductions for IRA contributions. You will simply be earning tax deferred income in your IRA or Roth IRA. Your mortgage interest is working out as a great tax deduction, so your after tax cost of paying the mortgage interest is even less than the 6.5% you are paying, probably around 4.5% after tax.

So the question is whether you can earn more than 4.5% on your non-tax deductible Roth IRA savings. If you can, then it is better to add to the Roth IRA and not pay down the mortgage. Also, you may want to look at placing some savings in sound/insured triple-tax-free municipal bonds with coupon greater than 4.5%. You may also want to consider some higher yielding taxable securities which may yield greater than 4.5% on an after tax basis.

You are doing grrrreat!!!! Keep on keeping on. Also those kids are very lucky to have a parent like you. Congratulations.

Why is your rate so sucky on your mortgage?

At that rate, you shouldn't be paying a penny in closing costs, financed or not.

A 15 year fixed, where you pay the closing costs (including financing them into the loan) should be around 5.75%. Even a no-cost refi should be a little bit lower.

If you're not already maxing out your company match, that's a much better return on your money than paying down a mortgage that is already relatively cheap. You said let's pretend. So which is it?

Rebuild the retirement funds. You'll likely gain more than the interest you're paying especially after tax benefits are accounted for. You should have more money at the end to pay off your remaining balance, with extra to spare, if your investments provide a decent return.

Tax deductibility of interest not an issue to weigh heavily. If your earn 10% in Roth each yr after 30% state & local taxes that is 7%. Very close to the 6.5% you "earn' by paying off mortgage early. That is better as the 10% no guarantee at all. Latest blog details some housing math http://blog.360.yahoo.com/blog-DFpFN8gnfqErsuwmXus...

Personally, I would invest heavier. You will reap greater tax benefits. Not to mention, your earning power will likely get lower as you grow older. You can deduct the interest you would be paying and lower your taxable income, when you get to retirement you will have little or no income besides your investments - and at that time you will pay less in taxes as that will be your only income.