Should I pay off my mortgage early?

Not having a mortgage payment sounds awesome, right? It is likely your largest monthly payment, and eliminating it would free that money up for any number of worthwhile endeavors.

If you have other debt, you could use the house payment money to accelerate paying it off. Think of the vacations you could take if you didn’t have a mortgage payment. Or maybe you just tuck it away and watch your savings grow.

The thought of no longer having to make a mortgage payment is very attractive, but is it the right financial move?

The Case for Paying Off Your Mortgage Early

Unless you’re retired or are nearing retirement, most financial advisors will say paying your mortgage off early is a mistake. And from a mathematical and/or financial point of view, they might be correct. However, many decisions, financial included, are made emotionally and not purely because of numbers.

Not having a house payment is liberating, especially if you’ve had one and now do not. The peace of mind, reduced stress, and even improved health from not having the burden of debt are undeniable. For many people who live paycheck to paycheck, not having a mortgage payment would improve their daily life more than having that money saved or in a retirement account.

While most financial advisors will stress the low cost of borrowing with a home mortgage means you should be fully funding your retirement savings before ever paying off the low interest home loan, especially if you are young and retirement is far down the road, many homeowners would rather enjoy the immediate benefits of not having a house payment.

Less debt and more monthly cash flow are tangible benefits of not having a mortgage. They may not equate financially over the long run to maintaining a mortgage and investing, but it might mean more activities as a family, better school supplies, a nicer Christmas or holiday season, or anything else that may enrich a family and create memories.

Is there a downside to paying off your mortgage early?

Of course there are downsides to paying your mortgage off early. Given the historically low cost to borrow money and the potential to earn greater returns through investing, the long-term math will almost always favor maintaining your mortgage.

There are a gazillion ways to look at the numbers, but the gist of it is that you are paying a historically low interest rate on money you are borrowing that is inflation protected. If inflation occurs while you have your mortgage (i.e. rates go up), your interest rate looks better and better relative to new rates. Additionally, presuming you have invested the money into some appreciable asset like the stock market or real estate, the money you have invested will compound over time and be worth much more than you would have saved in interest payments.

If you are young and your monthly mortgage payment is manageable, putting that extra money to use can be the right move. However, investing is risky and not for everyone.

Weighing the benefits versus the risk works if you understand the risk. If you don’t understand what you are doing, don’t do it. Get advice or educate yourself so you do know what you’re doing. For many people, the time and resources it takes to become a savvy investor is not worth it. Simply paying down debt and becoming debt free is enough. And that’s okay.

Savings vs. Paying Off a Mortgage

Regardless of which category you fall into, having adequate emergency savings should be a priority. If you are paying off a mortgage but leaving nothing for unexpected expenses, getting that money back out of your home may be difficult, especially if you have lost a job or your income has decreased.

While the numbers may say to invest in retirement instead of paying off your mortgage early, that’s a personal decision we’ve already covered. The peace of mind today might be worth more than the extra cash down the road to some people. However, having an emergency fund or general savings account provides peace of mind whether you have a mortgage or not.