I know this is going to take a major mind shift, but stick with me for a minute: If you own a home you love and intend to stay there forever, make it your top financial priority to get the mortgage paid off before you retire—or at least soon after. You say you don't have the cash handy to boost your mortgage payments? Yes, you do: Scale back your 401(k) contributions so you invest only enough to get the company match. If your company doesn't offer a match, avoid investing altogether.
Don't worry that I'm putting your retirement at risk. By cutting back on those savings today, you'll ultimately be more financially secure in the future. Think about it: Typically, the biggest ongoing living cost in retirement is your monthly mortgage payment. You save and save during your working years so that you can afford the mortgage payment in retirement. And if you eliminate that big financial obligation, you don't have to contribute so much to your 401(k) now.
You'll also save a bundle in interest payments by paying off the mortgage ahead of schedule. Let's say you have a new $200,000 30-year fixed-rate mortgage at 5.5 percent. That works out to a monthly cost of $1,136. And over the 30 years, you'll pay a total of nearly $209,000 in interest. But if you can manage to add $200 a month to that mortgage payment (make sure you earmark the payment for principal, not interest), you'll have the mortgage completely paid off in 21—not 30—years. And you'll fork over less than $139,000 in interest payments. So you'll have shaved off nine years and more than $70,000. Ratchet the additional payment up to $300 a month, and you will be mortgage-free in just 18 years and pay less than $120,000 in interest. (Check out the online calculator at bankrate.com to see how fast you can pay off your mortgage, and how much you'll save in interest costs by boosting your payments.) But what's even better than having extra money is having the security of knowing that you—not a mortgage lender—own your home. That's priceless.