Three considerations before paying down on your mortgage.

It's the start of a new year and people are looking at their financial resolutions. A common question that I see is "Should i save this money or pay down my mortgage?" In general, I am a fan of saving the money, but there are a few important points to consider.

1. Money is cheap right now, so paying extra on your mortgage is unlikely to actually save you much in interest payments. The notable exception here is if you can pay just enough to re-finance at an excellent rate and better terms.
2. Savings are very important, having three months of mortgage payments socked away in a cash savings account will be a godsend when you have a couple of months of tight budgeting or transition between jobs.
3. Retirement savings are opportunistic, you can pay off your mortgage pretty much any time you like, but putting extra money in your retirement account can only be done in the year you earned the money, or like a Roth IRA, until the tax deadline (so, for 2012 earnings/savings, April 15 2013). If you can afford to save for retirement, you MUST do it before the deadline.

Again, the main point is that money is cheap right now. Yes, you will pay less in interest if you pay an extra lump sum now, but you will lose the flexibility of keeping that cash on hand. In most cases, having that cash on hand may be more valuable than paying down the low cost debt. Everybody has a different situation and only make these decisions in the context of your whole financial picture.