I would explore paying down the mortgage, for this reason: if you are in the 28% bracket, you could get an effective pretax return as high as 10% by doing so. This assumes you are married filing jointly, and have no significant itemized deductions other than housing related items. Regardless, you have a minimum 7.25% guaranteed pretax return.

Hmmm., then when you do sell the old homestead you pay out 6% commission to the Realtor. Your example has both pros and cons.

Depends on what alternative investment returns are available and the current mortgage interest rate as well.