We're keeping our mortgages for all the wrong reasons

Five colorful houses of graduated sizes

You've paid off all your debts except the biggest one: your mortgage.

Does it make sense to hang on to your home loan if you can afford to pay it off early?

No.

Now, a lot of people — including some real estate professionals — disagree.

Some disagree because it's in their best interest for you to borrow.

Others disagree because they've been misinformed.

Let's look at three reasons why this myth persists:

Reason 1. We overvalue the mortgage interest tax deduction.

Many people, even some financial experts, think that being able to deduct your loan interest saves you a bundle on income taxes.

That's flawed logic.

The mortgage interest tax deduction isn't worth what you think. It might not even be worth more than the standard deduction.

Reason 2. We think mortgages are cheap.

If you're in the market, they've never been less expensive. The average 30-year, fixed-rate mortgage costs about 3.6%

By the standards of a home loan, that's incredibly cheap.

But every $100,000 you borrow for 30 years at 3.6% will cost you $63,672 in interest.

Maybe they aren’t so cheap after all.

But that's OK, because while you're paying 3.6% in interest — maybe less in some years because of the mortgage interest tax deduction — you can earn more than that by investing your excess cash.

Reason 3. We think we're better at investing than we are.

I used to think it made sense to invest extra cash instead of paying off a low-interest loan early. Dave Ramsey's book, The Total Money Makeover: A Proven Plan for Financial Fitness, has changed my mind.

Ramsey says you won't come out ahead, and data I've tracked down on average investors' performance supports his statement.

The big reason this isn't a successful strategy? Most people don’t earn very good returns because of fear and risk aversion.

Dalbar, a Boston-based financial services research firm, says that while the S&P 500 gained 2.12% in 2011, the average equity mutual fund investor lost 5.73%, effectively underperforming the market by 7.85%. And the typical investor’s average annual underperformance over the last 20 years was 4.32%.

If you’re like most people, you’re one of these underperforming investors.

Paying off your mortgage early doesn't require any investing skills, however, and the return is guaranteed.

Admittedly, the math changes if you're investing your excess money in a tax-advantaged retirement account.

In an IRA, 401(k), or other retirement account with tax benefits, you won't pay any capital gains tax on your investment returns.

So, it might make sense to keep your mortgage and put your extra cash into your retirement account.

Once you've maxed-out your contributions, you can put the extra cash toward paying off your home.

But here's a compelling reason why you might still prefer to pay off your house early — as long as you're already putting 15% of your gross income into a tax-advantaged retirement account.

Once the mortgage is paid off, you'll have a place to live, no matter what might go wrong in your life.

You'll only have to keep up with your property taxes, homeowners insurance and basic maintenance.

With the extra cash flow from not having a house payment, you'll also have an easier time paying the bills in a worst-case scenario.