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Wells Fargo

The Mortgage Professor: Is paying down your mortgage balance a good investment?

Q: We are allocating $600 a month to savings. Should we pay down our 4 percent mortgage or put the savings into our retirement account? A: In principle, you should place it where it will earn the highest after-tax and risk-adjusted return. If you itemize your tax deductions and are in the 25 percent tax bracket, your after-tax return on mortgage balance repayment is 3 percent and it is riskless. In today's market, that is a good return. An investment account consisting entirely of insured CDs, for example, will earn closer to 1 percent. On the other hand, if your contributions to the investment account are matched by your employer, you would do much better investing there. If your...