Should I Pay Off My Mortgage Early?


In this post: We will look at whether it makes sense to pay off a mortgage early.


This is the Millennial Wealth Blog.


Should You Pay Off a Mortgage Early?


There are a number of considerations when thinking about putting extra money towards paying off your mortgage early.  From a psychological standpoint, paying off your mortgage may be the single best thing you can do with your money.  However, when you look objectively at your financial situation it may make more sense to allocate any extra money toward another financial goal like retirement or paying off higher interest debt.



The Psychological 

From an emotional standpoint, paying off your mortgage early can be an incredibly satisfying accomplishment.  The weight of carrying a large liability on your personal balance sheet keeps many people up at night.  If you are a person that can identify with this notion then you are probably a good candidate to put a plan in place and pay the mortgage off early.  It is possible that this mental weight is limiting your ability to perform your best on a day to day basis, ultimately feeling like you are trapped in a cage or a prison cell.  Being debt-free and finding financial freedom should be the ultimate goal for any individual working on their financial plan.  When you are free from the burden of debt you can exercise more control over your life, spending your time on things you enjoy, spending your money on things that make a difference such as charitable giving, and giving you an opportunity to chase your dreams.



The Numbers

From a completely numbers driven standpoint, paying off your mortgage may not be the best course of action.

If you first do not have a proper emergency fund of 3 – 6 months of monthly expenses saved up, then you should not even consider paying more on your mortgage each month.  An emergency fund should be highly liquid and accessible and your home will only give you access to your funds if you sell it.

Consider paying off other debt first.  At this point in time, mortgage interest rates are quite low, and most homeowners that purchased when rates were much higher probably have re-financed to a lower rate by now and if you have not, you should probably consider it.  Credit cards, lines of credit, and other consumer debt are likely carrying higher interest rates and should be paid off before putting extra money towards a liability with a lower interest rate.  Think of it this way, interest that you do not have to pay is like interest you earn.  So, if you would like a quick way to earn a good fixed-rate of return, pay off those high-interest debts.

If you do not have any other liabilities other than your mortgage and your interest rate is low, you may consider taking your extra cash each month and investing it to build wealth at a higher rate of return.  Consider maxing out your retirement accounts like your 401k and IRAs or even your HSA, if you are eligible.


In Conclusion

As you can see, there are many considerations, pros, and cons of paying more toward your mortgage each month.  Think about whether you are able to sleep better at night knowing you do not have a mortgage hanging over your head or whether your money is working as hard as it can be in a potentially better long-term investment.  If you need any help making this decision or you have any questions about your financial solution, consult with a fee-only financial planner who can work with you on your particular situation.


Related: Is a 15 or 30 Year Mortgage Better?


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