This really is a very personal decision; there is no globally true answer.
Among the factors that play into this are:
- Your life priorities. Do you value your independence, or do you value material luxuries?
- The difference in interest rates (after taking taxes into account).
- Your expectation about future interest rates.
- When you plan to retire.
- What your expected income is, both now and in the future.
- Your personality; in particular, your risk tolerance.
- Whether you have a family
- Whether you want to build generational wealth, leave something to your children, or whether you prefer to have your retirement nest egg last until you die, and not beyond.
- Whether you have life insurance.
- How certain you are about future job prospects, natural disasters and other factors that could cause you to lose your home.
- Your insurance rates. Although this may not be a good idea, theoretically paying off your mortgage early could allow you to cancel your homeowner's insurance. Another place where your risk tolerance figures in the picture.
- And a lot more.
One approach I use is to think of paying down the loan as a form of savings account, where you pay yourself the interest (by saving on mortgage interest).
For instance, if your mortgage interest is 5%, and you just closed on a 30-year mortgage, then paying off $1000 of that mortgage is the same as putting it in a savings account at a guaranteed rate of 5% for the next 30 years.
That's a great deal if interest rates stay low, but a terrible deal if in five years, interests on savings account go back to 1970s levels.
If you lose a tax deduction, then treat this 5% interest "to yourself" as taxable.
In addition, paying off the mortgage also is, effectively, a retirement contribution (so is saving the money, of course, if it's long term savings). Once the mortgage is paid off, your disposable income goes up during retirement. As a result, it can sometimes even make sense to use funds from an IRA/401(k)/Roth etc. to pay off a mortgage (but be careful, and look at both tax consequences, and the risk of losing your home to foreclosure or a disaster). Another thing that can sometimes make sense (and often does not): borrow against your 401(k) to pay off your mortgage. When you do that, it is financially the same as investing the 401(k) into a fixed-interest security at a fairly decent interest rate (often 4%, with a five-year maturity). At the same time, on the other end of the transaction, you replace your mortgage with a loan for a fairly low interest rate (also 4%, obviously).
There are risks to this strategy, primarily if you get sick, lose your job, or need money for some emergency.
Again, a lot depends on your personal situation, so don't take this as a recipe but as food for thought.