Pay off your mortgage early? Why you may want to wait.

If you're fortunate enough to have disposable income, paying off your mortgage early might seem like a smart way to spend your cash. It's definitely a better approach than wasting your money on shopping and recreation. And given how a mortgage loan can take up a third of your monthly income, getting rid of this debt lets you do other things with your cashflow. But just because you have extra cash to pay off a mortgage doesn't mean you always should.

Here's a look at five times when you shouldn't rush to pay off your mortgage.

1. You'll Miss Out on Tax Advantages

During the first half of a 30-year mortgage, a large percentage of your mortgage payments go toward paying down the interest, so your principal balance only decreases a little from year-to-year. It's frustrating to say the least, but think twice before dumping your disposable cash on extra principal payments.

Some people will jump at any opportunity to pay off their home sooner, but there are tax advantages to keeping a mortgage loan. If you itemize your yearly tax return, there's the option of writing off your mortgage interest payments and lowering your taxable income. This reduces the amount owed to the state and federal government, or it might result in a bigger refund. This single deduction reduces my tax liability by more than $2,000 a year.

2. You Don't Have Any Type of Emergency Fund

Everyone needs an emergency fund, period. It doesn't matter who you are or what you do, if you're a middle-income American, you're going to hit at least one rough patch in your lifetime. A six to 12-month cash reserve is your backup plan for unexpected expenses or major setbacks like a job loss. However, you might feel paying off your home takes priority over saving. Your home is your biggest investment, and naturally, you want to protect it. But ask yourself: How's your savings account looking?

If you have plenty of cash in a rainy day fund to handle life's curveballs, paying off your house early isn't a bad plan. But if you don't have any type of emergency savings, the focus should be on building your account. Paying more toward your principal builds equity and gets you closer to owning the property outright, but this plan might backfire if you find yourself unemployed without a cushion.

3. You Don't Have a Solid Retirement Plan

A few years ago I had a conversation with a couple that was committed to paying off their 30-year mortgage early. They put every extra cent toward their mortgage, sometimes paying an extra $400 or $500 a month. Both were in their early 40s, and despite their age, neither had started saving for retirement.

Their plan was to focus on retirement planning after paying off the house. From their point-of-view, the house was their retirement. Without a mortgage, they wouldn't need as much monthly income later in life. I understand their thinking, but there are no guarantees a plan like this will work.

Their plan didn't take into account curveballs like long-term unemployment due to illnesses or layoffs. If for some reason they couldn't pay their mortgage, they would potentially lose their house and their equity — and essentially their retirement.

There's nothing wrong with paying extra toward your mortgage, just make sure you're also planning for the future and saving enough for retirement.

4. You Have High Interest Debt

What you paid for your house is probably more than what you owe on credit cards, and getting rid of your biggest expense may seem like the best way to attack debt. But although we spend hundreds of thousands of dollars buying a house, average mortgage interest rates aren't as high as some credit cards'.

Credit card debt is a never-ending battle, especially when you have a high interest rate and you're only paying your minimum. Paying off your mortgage early is an excellent goal, but don't rush. Make high-interest debt your priority. These include credit cards, personal loans, and other lines of credit. Besides, paying off these debts gives your credit score a boost. Once you have these creditors off your back, you can focus on paying off your mortgage.

5. You Have a Prepayment Penalty

Some mortgage lenders stick borrowers with a prepayment penalty, which is basically a fee for paying off their mortgages early, usually within the first five years. This penalty discourages early pay-offs. Lenders calculate an estimated rate of return for each loan, and the longer a borrower owes on a loan, the more a bank earns.

Typically, a prepayment penalty only applies to refinances and cash payoffs, and most banks waive the fee if a borrower sells the home. If you're coming into money and thinking about paying off your home, read your paperwork to learn whether your mortgage has a prepayment penalty.