Emotionally, it is a meaningful and feel-good sensation to pay down a mortgage, but it’s always prudent to take a close look at the ramifications of any significant financial decision and compare them to available alternatives. If a homeowner has excess cash reserves beyond funds set aside for illness, education and other savings to provide certainty and to ensure he will realize his expectations for the future (read: as his insurance), he then has the money to pay down a mortgage and the luxury of erring on the side of emotions if he feels more secure by being debt-free. He has enough liquidity in his other assets to provide cash to absorb the shocks of loss, if and when they occur.

However, “feeling good” in being debt-free by paying down a mortgage does little to help someone who loses their job and has no reserves to pay bills. That person may lose their home anyway, if they are not able to quickly liquidate the equity in their property by selling. Owners of real estate must juggle a huge — almost unacceptable — risk of loss in their decision to pay down a mortgage (unless they are suffering from the enviable position of having too much excess money in reserve), as real estate, by nature, is a long-term endeavor. To offset that huge risk, and as long as the interest rate on his mortgage is not significantly higher than what he is able to earn elsewhere on investments, the homeowner must keep his reserves liquid and his 30-year, fixed rate mortgage intact.