With news of rising mortgage foreclosures continuing to make headlines, it would be natural for home owners to think that paying off their mortgages early would be a way of playing it safe. After all, once someone owns a home free and clear, there's nothing a lender can do to take it away. However, as with most financial decisions, paying off a mortgage early is not a no-risk move. Instead, it involves trading off one form of risk for other types of risk.

Therefore, before anyone pays off a mortgage early -- in whole or in part -- it would be wise to first understand some of the offsetting risks.

Opportunity Cost

Extra money that is plowed into the mortgage is money that cannot be invested elsewhere. Since most Americans need to invest to raise money for retirement, foregoing the opportunity to invest is a meaningful risk.

Certainly, paying off the mortgage will save the home owner from having to pay interest. This might appear to be a wash with any potential investment earnings, and it would be, except for two things.

First of all, mortgage interest is often tax-deductible. The deductibility of mortgage interest tends to be over-hyped, because investment earnings are subject to taxation. However, at least some of those investment earnings could be taxed at the capital gains rate, which is often lower than a person's income tax rate. So, even with this offset, many people can realize a tax advantage by investing rather than paying down the mortgage.

Perhaps of greater significance is the opportunity to earn an investment return higher than the interest being paid on the mortgage. Historically, stocks have averaged returns of about 10% per year, well above recent mortgage rates. While stock returns will fluctuate greatly, over the long haul this suggests another potential advantage to investing.

Loss of Liquidity

Paying a mortgage early also means sacrificing liquidity -- the amount of ready cash at hand. Should the home owner then need money for a home improvement or other large expense, they would have to borrow from a lender. This would mean a new set of closing costs and a home equity rate that is likely to be more expensive than the current mortgage rate.

By not paying off the mortgage early, the home owner retains more liquidity which can be used for future expenses, or simply as a buffer against financial setbacks.

 Equity at Risk

Finally, anyone who is concerned about foreclosures should realize that putting more equity into a house siply increases the value at risk. This applies to accelerated mortgage payments, where the mortgage is not paid down completely, but where larger mortgage payments accumulate home equity more rapidly. If, due to a subsequent financial reversal, the home owner can no longer meet the mortgage payments, he or she will forfeit the additional principal paid previously.

 "Playing it safe" means different things to different people. So before you decide to pre-pay your mortgage consider both the pros and cons and determine if that is truly a safe option for you.