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When not to pay down your mortgage

Handmade home art_ohmeaghan Home mortgage interest is the biggest tax deduction most of us have. That's because that home loan is our biggest debt.

So it's not surprising that the urge to pay off a mortgage is strong.

Many people do so by making extra principal payments, either via biweekly payments, adding an single extra payment each year or including a little more with each payment. I've been doing the latter since the hubby and I bought our Austin home five years ago, simply rounding up the monthly payment to the next amount that ends in zero.

All personal financial decisions are, well, personal. But Ron Lieber in today's New York Times Your Money column offers some general guidance on when you shouldn't pay down your mortgage.

Things to consider include your real interest rate (which is affected by your tax rate), other investment return options, your savings, liquidity issues and your peace of mind.

I like what one financial planner Lieber spoke to said: "The whole point of planning is to make life better," he said. "It’s not to have more dollars at the end of the day."

Personally, I'm comfortable with the nominal amount of extra cash we send the bank each month. It's not enough to cut our loan term significantly, but neither is it keeping us from doing other smart and fun things with our money.

Do you make extra payments? If not and you're interested, this calculator can help you see what extra payments will do to your home loan.

If you do make extra payments, has doing so significantly affected your cash flow? What about your tax bill?

Home art by ohmeaghan

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home buyer

2010 was kinda a bizarre year for the mortgage market. In the first half of the year, you had a decent number of home sales keeping mortgages for purchases stable, thanks to the home buyer credit. In the second half of the year, that changed as demand crumbled when the credit was withdrawn. At the same time, you had very low mortgage interest rates throughout much of the year cause a mini-refinancing boom. 2011 will look very different, as the housing demand continues to struggle and mortgage interest rates have begun rising.

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