The letters and e-mails early in the year – especially from empty nesters and aging boomers – seem to focus on long-term planning.

For example, last week “Mickey” wanted to know if he should sock more cash away into his 401k retirement plan or pay down his mortgage. “Earl” asked if it made sense to invest in a Dow Jones company’s stock or throw the money directly at the principal portion of his home loan.

I’ve always been a pay-it-off kind of guy when it comes to home loans. I believe there is a huge benefit – financial and philosophical – to owning the roof over your head. When that roof now covers your office, as it does for millions of small business owners across the country, isn’t there an extra incentive to make a bigger dent in the domestic debt load as we get older?

Many financial planners will tell you folks simply don’t focus on stashing away retirement dollars until the loan on the family home is paid in full. With the cost of living, coupled with monthly mortgage payments, where do you gather extra cash to be used down the road?

I have also subscribed to the belief that average consumers should never invest money they can’t afford to lose. For example, I cringe when I hear of folks taking the monthly grocery money and plunking it down on a stock tip they overheard at the coffee shop.

According to Jack Guttentag, professor of finance emeritus at the Wharton School of the University of Pennsylvania, consumers should view the yield of principal prepayments on their mortgage as equal to the interest rate on their loan – as long as there is no prepayment penalty included in the loan. Hence, if you are paying 6 percent on your loan, prepaying your mortgage would make more sense than plunking any extra cash into a savings account paying 2-3 percent interest.

Guttentag also states that if the yield on mortgage repayment is being compared to the yield on other taxable investments, it doesn’t matter whether yield is measured before tax or after tax (tax-exempt bonds could be an exception).

My pay-it-off philosophy is now consistently laden with potholes. The four children need school-related cash – even in public education – so the reality of funding anything more than our annual contribution to an individual retirement account is out of the question for the near future. However, down the road there might be a time when discipline and peace of mind begin to play larger roles.

For example, would I sleep better at night knowing that I am taking a bigger chunk out of the home loan mountain rather than making a few more percentage points in other markets? Or, is the guaranteed return from prepaying the mortgage absolutely no longer acceptable given the potential of stocks, bonds and other investments?

The factors that always need to be weighed are risk, comfort and discipline. Would I have the discipline to actually invest additional cash instead of paying off the mortgage? How would I feel if a sure-bet stock went bust, blowing not only my hard-earned extra dollars but also the chance of reducing the number of years on my home loan?

Remember, you can save a ton of mortgage interest by prepaying your loan. If fact, if you make an extra principal portion a month, you can reduce the loan term of a 30-year loan by approximately 12 years. Conversely, by prepaying the loan, you also lose a piece of your mortgage-interest deduction. Your actual savings is computed with your marginal tax rate and you mortgage interest rate.

Are you one to dig in, do the research and then work the numbers with a broker or handle the transactions yourself? The real challenge for the average consumer is having the discipline to carry out the challenge. Remember that the biggest mistake common investors make is overestimating net returns over the long term.

If you already have investments and feel paying off your home loan would help you “diversify,” there are several home-loan acceleration computer programs that show you the cost-effectiveness of various options in the mortgage market. Guttentag’s site (www.mtgprofessor.com) offers several excellent calculators as does Smartmoney.com.

And, make sure your partner is onboard with any major domestic decision. While both Mickey and Earl were leaning toward investing in conventional financial markets, their wives preferred to pay down the mortgage.

Tom Kelly, former real estate editor for The Seattle Times, is a syndicated columnist and talk show host. Tom can be reached at news@tomkelly.com.

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