Should I Pay Off My House Early? – Pros and Cons

Should we pay off our house early? What about the next house? Don’t worry guys, we haven’t bought our next house just yet. We’re keeping our current one for at least another 12 months. However, we have been thinking about whether we should pay off our current house quickly (we have been debating whether we…

Michelle Schroeder-Gardner

Last Updated: May 26, 2023

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Find out the pros and cons of paying your mortgage off early. This is a helpful list!Should we pay off our house early? What about the next house? Don’t worry guys, we haven’t bought our next house just yet. We’re keeping our current one for at least another 12 months.

However, we have been thinking about whether we should pay off our current house quickly (we have been debating whether we want to rent it out or not – if we decide to sell then we of course wouldn’t pay off the current house quickly) and even whether or not we should pay off our next house quickly as well.

Our income has increased by a lot over the past couple of years, and I talked about this in my post from last week Financial Goals and Increased Income – Many Changes. Because of the increased income, it is hard not to think about just throwing everything extra (after student loans and retirement) towards our mortgage.

We’ve been making around $8,000 extra each month because of all of our side hustles, and it’s hard to not want to pay down all debt, regardless if someone thinks that it is good or bad debt.

Earlier this month, Holly made a post about how she wrote a check for $8,700 so that they could pay down their mortgage a little more quickly. Most people were extremely happy for her and her family, but of course there are others out there who would rather pay down their mortgages slowly. Crystal also recently made a post about how they paid off their first house recently, WOOHOOO!

I have calculated it over and over again, and we could pay off our current house early next year if we wanted to. WHATTT? Then why would you even want to buy a second house?!

This is something that I’ve/we’ve been asked often. We love our house, but we bought it when we were 20 years old. It’s a great home, but we bought it knowing full well that it was only a starter home for us.

Anyway, I do have my Finance MBA and realize that I should be using debt to my advantage, such as with taking advantage of historically low interest rates (boy, do I sound like a commercial). But there’s that nagging inside my head that keeps saying “MORTGAGES ARE DIFFERENT! Pay that baby off!”


Advantages of Paying off Your Mortgage Early

The main advantage is that if I pay off my mortgage, at that point it would mean that we would have no other debt. That just sounds awesome.

And, I’m the type of person who keeps a large amount in our emergency fund. Even though we will probably never have to tap into it, I still want it. I like the comfort of knowing that it’s there, and that if something did come up, I wouldn’t have to run around with my head chopped off trying to solve whatever went wrong.

And this is how I see paying off our mortgage early. I see freedom, comfort and everything else. Yes, I do realize that paying off our next house completely is years away (hopefully less than 5 years from the purchase date though) and that there are other costs of having a home such as property taxes and home insurance which will still need to be paid even though we would no longer have a house payment. However, having a big chunk completely eliminated from our budget every month sounds nice.

Once my student loans are gone, which should be next month, then I of course want somewhere else to shovel my money. We do have car loans, but that is at a low rate (much lower than our mortgage), and I’m not worried at all about paying those off. I am not saying that I want to shovel 100% of all leftover money towards paying off our next house quickly. We would still save for retirement and other fun things, but we would also make extra payments as much as we can as well.

If you have a high interest rate on your mortgage, it is probably worth it to pay off your loan as well or at least get it refinanced. However, it doesn’t seem like I hear about too many people with high interest rates on their mortgage these days though.


Advantages of Paying off Your Mortgage Slowly

There are many advantages of paying off your mortgage slowly or just making the normal payment every month. You can invest your extra cash elsewhere and earn a higher rate since today’s interest rates are very low, especially when you factor in inflation. If you have a fixed rate loan, then a $1,000 payment today will still be a $1,000 payment 30 years from, but with inflation 30 years from now, $1,000 will be nowhere near the amount that it is worth today.

If you don’t pay off your mortgage quickly and put it in other investments, then all of your money won’t be tied into one thing, which is real estate. This point doesn’t really apply to us, as we would be working on paying it off quickly, but we would still aim to be saving for retirement at a larger rate. But for others who shovel 100% of their money towards their mortgage, this could be a problem if they needed a large chunk of change at the last second. Then there is of course the tax factor and how you can deduct interest expense as well.

If you have loans at a high interest rate (or anything higher than your mortgage), are not saving for retirement at all, have no emergency fund and so on, then making mortgage repayment your priority might not be the best option. Pay off those high interest loans!

Why are you paying down your mortgage quickly or slowly?

If you don’t currently have a mortgage, what would you do?

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Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. plantingourpennies

    I think a lot of it comes down to what your current interest rate is and where the money would go otherwise. If all the extra mortgage money would go toward investments that are likely to earn 2x the mortgage interest rate, it's tougher to justify paying it off. But if a good chunk of that money might slip through the cracks and get spent (not invested), then you're better paying it off than "wasting".

    1. Well we haven't bought the next house yet, but I'm assuming that the interest rate would be less than 4% (hopefully they are still low next year!).

  2. myfijourney

    If you have a high interest rate mortgage, refinance to a lower interest rate if you can. If you have a low interest rate mortgage, it makes more sense to invest your money elsewhere, because you'll likely get a better return than you would on paying extra on the mortgage.

  3. If I were in your shoes and had the opportunity to pay off my mortgage next year. I would do it! Then you will have more extra money to do what you wish. There is just something about having a paid for home. I may be a bit biased because I paid mine off a few years ago.
    My recent post 150 Words on: What Do You Spend Money On?

    1. I like the thought of a paid off home as well 🙂

  4. We don't have a mortgage yet, so I'm just speculating what we would do. I don't think that paying off the mortgage has to be all or nothing. I think we would pay an additional amount towards the mortgage, while also putting more into retirement/investments. I know, that's not a very definitive answer : )
    My recent post What Should You Do After Receiving a Raise?

    1. I agree, I'm with ya 🙂

  5. There are a lot of pros for paying off your house and not many cons. Luckily, you don't have to pick between investing and prepaying your mortgage. You can do both!
    That is what we do- we pay our house off quicker than we have to, but we don't sacrifice our other saving and investing to do so.

    1. This is what we plan on doing as well. Attack both investing/saving and paying off the future house 🙂

  6. Brian

    I have a paid off home. It is great. It allows me to do lots of things my friends can't do (like travel). It also helps alot because we have a kid and the cost of day care is pretty much like having a mortgage payment. I know you are getting married soonish, but after that the talk about when to have kids will come about. Kids are really expensive. I know I was told this, but it is true. Our little boy is pretty healthy but has still cost us $10K in medical bills the past two years because he has had chronic ear infections (I'll take those over what other parents have had to deal with).

    Of course the finance geek in me says keep the low rate mortgage invest the difference and profit! In the end I'll default to what I usually say when giving advice… you have to do what makes you feel comfortable.

    1. We've already talked about kids and plan on waiting at least another 5 years 🙂 We've already talked about everything, getting married for us is pretty much just a piece of paper to legalize everything haha

      And I agree, we'll have to see what we feel the most comfortable with.

  7. John S @ Frugal Rules

    If we were in the position to pay off our mortgage early, assuming we were already maxing out our retirement, then I would totally go for it. We're in no rush to pay it off early, but if you can then why not. Once you do get it paid off it opens up so many other possibilities for you.

  8. Well, I have no future, but my wife and I are probably very close to being ready to buy a home. For us, I think we would find a nice place that we could completely afford without any issues, but then do a 15 or 20 year mortgage. That way we'd be throwing extra money at it, but not so much that we'd call it "paying the mortgage off early."

  9. wags16901

    I will pay my house off as early as I can. That will mean debt-freedom and will feel like a big weight has been lifted off my shoulders. That may not be the proper thing to do according to the financial gurus but without debt I will feel more free. Not sure what I will do with the extra money every month yet but I still have a long way to go and will determine how I am going to cross that bridge when I can see it approaching.

    1. I can't wait until mine is paid off 🙂

  10. My wife is in the process of applying and starting grad school for clinical psych. Because of this, she has not yet started her "career" job, and a decent amount of time will be spent in school the next few years. While most phd programs do offer you 30-35k/year (and no tuition), they only take about 2-3% of applicants. What I'm getting at is that managing our cash flow is very important for the next 5-10 years, so I do not plan on paying down more than the minimum, even if I have "extra" cash laying around. I personally hate this question but it does get a lot of response/traffic so I also have written about it and got a fiery resopnse when I took a stand that you should NOT pay it down fast 😉 PF bloggers (and others) have strong opinions about it, but honestly, as I told a friend recently, it's up to each individual and I personally have little opinion about what people do with their own money.
    My recent post Benefits of Attending Community College For Two Years

    1. I agree with you. It's up to each person individually. For us, it has a lot to do with the fact that soon we will both have commission or freelance based income.

  11. As you probably knew, you will get a lot of different opinions on the topic. But I say go with your gut instinct and do what feels right for you. For me, that is getting rid of all of the debt as quickly as possible….it just feels better. I know there are a lot of avenues that have a possibility of a greater return, but why not take a guaranteed return when you can and relieve that stress from your life? A bird in the hand is better than two in the bush, make hay while the sun is shining, and all that nonsense. 🙂
    My recent post The Best Investment: Invest Early

  12. We're in the "pay it off" camp. Just not having that thing hanging over our heads brings much more peace of mind, at least for us, than we would have if we were making money through investing.

    1. I think I'm in the pay it off camp also 🙂

  13. I think it depends on the situation and interest rate. If your interest rate is above 5% then I can see why trying to pay down your debt early is beneficial. If it is lower then the benefits seem less as you can take that additional money and possibly invest it in something that can earn you more than the interest rate you are paying on your house. We want to pay ours down quickly because we want enough equity in our house so we can move. We are not happy where we live but since we bought the house the market has dropped.
    My recent post Site Stats

    1. I agree Alan. Thanks for stopping by 🙂

  14. I think we will take a multi strategy approach. Save for retirement, invest in a taxable account, and pay off mortgage. We do want to pay off our house early when we have one though. But I don't think we will take the gun ho approach and pay it off asap.

  15. mycanuckbuck

    We paid off our first mortgage early and it felt AWESOME! We put the extra into savings etc. It was really nice to know that if either of us lost our job etc, we'd still be okay!
    My recent post Getting the right tool for the job

    1. That's great! I bet the feeling is awesome.

  16. My husband is 9 years older than me and I don't work but am blessed to stay at home. He is paying off the house so he can make sure it's one less expense that I need to worry about if he dies first. We would both love another house, but we are keeping this, paying it off,and traveling.

  17. If you can pay it off within a YEAR, I would totally be paying it off! I'm assuming that your next house will be bigger and so utilities, property taxes, and everything would probably be more. You're also paying PMI now on your current house, which is expensive. If you pay off your current mortgage and then turn around and sell the house, that's sort of like a 1-year CD paying your interest rate. If you don't pay it off, I would at least pay it down so you have enough equity to refinance and get a lower rate.

    Disclaimer: I'm paying off my mortgage aggressively and should have it gone within 3-5 years. I think it's a little bigger than your guys' mortgage though! (It's just over $240k right now and I've paid down over $40k in the last 10 months.)

    My recent post Challenge: No Manual Money Moves in April

    1. Haha yes your mortgage is bigger than our current house. We live in the Midwest so housing is cheap, and our house is worth around $130K

    2. Travis

      "You're also paying PMI now on your current house, which is expensive."

      PMI can be removed when the loan balance is at/below 78% of the purchase price.

      Are you still paying PMI even though you have a big chunk of the mortgage paid off now? If so, check with your bank because you should be able to get those PMI premiums removed.

      1. Travis, thanks for stopping by! And we haven't paid off a big chunk of the mortgage yet.

  18. If you are an emotional person then pay it off. If you are logical, then invest what you would use yo pay it off. If you would spend the investment money then pay the mortgage off rather than pretend you will invest.

      1. christie

        The problem for most couples is that one is more emotional and one is more logical. 😉 Oh well, that makes for a good team.

        1. Haha yes Christie, me and W balance each other out 🙂

  19. I don't have a mortgage, but I would not pay it off early. It's less definite, but I feel I'd be giving up a lot of upside investing in higher risk/higher return vehicles. That is scarier to me than having mortgage debt. If I could, I would lock in a mortgage at these crazy low rates and keep it for 30 years. In another climate my decision might be different, though – it's all about the spread between the mortgage interest rate and the return you're likely to get for the amount of risk you want to take.
    My recent post How to Price a Room for Rent

    1. I agree Emily. Thanks for stopping by!

  20. alwayshungry4

    How funny, Johnny Moneyseed just posted something similar – I think it might just come down to personal preference since I think both ways are financially responsible actions. I think if I were already allocating a lot towards retirement and investing, then I might take a dual approach with extra income and put a portion of it towards extra payment and the other towards investing. But I think it's just a matter of what works for you! 🙂
    My recent post Family stuff

    1. Haha I noticed that too! It's a great topic.

  21. wmwo

    I've accelerated my mortgage payments (biweekly vs monthly, plus an extra 20%) in spite of the fact that my rate is reasonably low, but I thinking I might not bump it up the acceleration any further than I already have. As it stands it would be in my best interest to save/invest any extra money going forward because I'm more likely to get a better return on it through investing than what I'm paying on my mortgage. That and my financial position is not very liquid at all; almost everything I have is locked into either my mortgage or retirement savings. If I was sitting with a healthy investment account I would probably look more seriously at paying my house off earlier.

    If you're serious about considering paying your mortgage off, I really wouldn't give the tax break given to your mortgage interest any consideration. Which is better: paying ~60% of the interest, or paying 0% of the interest?
    My recent post Unfinished Business

    1. I definitely don't plan on giving it any consideration, but it seems like a lot of people do!

  22. debtroundup

    I assume that you have enough in equity to use as a down payment on the next house, especially if you are close to paying it off. I would say no and invest the money you would use to pay it off. If you sell your home next year, you still shouldn't have to use any money for a down payment since you will have it from the home sale.

    We plan on moving next year, so we are building our down payment fund and not paying down the mortgage aggressively.

    1. We haven't started aggressively paying down our current mortgage yet, only the normal monthly payment plus a very small amount extra occasionally.

      We are building up our down payment fund as well. Can't wait until we get to that point.

  23. Pauline @ Reach Financial Independence

    I won't overpay my rental mortgage since the rate is super low and more than covered by rents, and then I bought my home cash to feel really at home. Best of both worlds!
    My recent post Complicated European holiday arrangements

    1. Good for you Pauline 🙂 It's a tough decision!

  24. krantcents

    Although I am paying off my mortgage a little early, I don't like it. My home is worth a lot of money and I want to access it to invest elsewhere. So I established a line of credit and will use those funds for investing from time to time. I will always have some debt, but I expect to earn more than it costs me.

  25. I agree! It is a lot easier to attack debt.

  26. We recently refinanced our mortgage and are paying it off slowly, which I am comfortable doing. I think it's comes to down to personal choice. If having this debt weighs you down, then eliminating your mortgage might be the right choice for you. At the same time, since you plan to buy a new home in a year – you may be better off using the extra payments to pay more down on a future home so you can pay that home off more than quickly than a home you plan to sell or rent. The great thing is you are fortunate to have options! 🙂
    My recent post Teachable Moments: Talk to Your Kids about Money

  27. We paid off our first house super fast because I hate debt and having two mortgages just scared me. Now we may start paying off our current mortgage too, but we aren't set on that 100% since we also want to invest more in stocks and maybe another rental property…we'll see. Do what feels right for you two. Good luck!

    1. Having two mortgages scares me also, and that's why I keep thinking about this! Thanks Crystal!

  28. We're pretty sure that we want to buy the next house next year, and we're still not sure if we want to get into the rental business. We are currently saving for the next house and will have enough saved for the next down payment and also enough to pay off our current house completely.

  29. That's awesome what just $50 will do!

  30. nicoleandmaggie

    We're doing a little bit of this, a little bit of that. For us, diversification is important.
    My recent post Ordering replacement parts from the manufacturer

    1. I agree, diversification is important!

  31. Jenny@FrugalGuru

    If you're going to turn it inso a rental, I absolutely would NOT pay it off early. If you're going to live in it, then yes, I would!
    My recent post 18, Jobless, and Homeless–What To Do?

  32. Sorry, I should have made it clearer in the post. We would only pay off our current house if we decided to keep it and rent it out. If we decide to sell it then we would never even think about trying to pay it off quickly!

    1. We would do that, but the thought of having two mortgages sounds scary!

  33. Michelle, you are in a win-win situation. If you DO pay it off early (whether you keep it or rent it out), you will be able to rebuild your savings again by not having a mortgage or by having renters pay you. If you DON'T pay it off, you have that money to invest in something else. (If you didn't have your side income though, I would not pay it off early if I wasn't going to live in it. Sure it's scary having 2 mortgages, but I would be getting $ from renters.)

    Currently in my mortgage, I'm paying off slowly because it's more principle now than interest (hmm truthfully, i'm just low on the funds haha). When I first had my mortgage though, I put lots extra towards principle.

  34. kimateyesonthedollar

    I forget how old you are exactly, but if you could pay off your current house, rent it, then buy your long term house and pay it off in five years, you'd be in such a good position at such an early age. You could invest, buy more real estate, no limits to what you could do. I've never heard anyone say they sure wished they hadn't paid off their house. Everyone I know who owns a house outright is ecstatic about it.

    1. I agree Kim! I would be so ecstatic and the feeling would be awesome 🙂

  35. studentdebtsurvivor

    I think there are good arguments for either side of the debate. Right now we're saving for an investment property down payment, which would bring in some extra cash for us (and help us pay down out mortgage faster).
    My recent post One Year In Our Home: 10 Tips For Condo Buyers

    1. I agree, it's hard to decide.

  36. Travis

    I own my house free-and-clear (as well as no other debts). I know it's not the most optimal thing to do as far as leveraging money and maximizing returns, but there is a LOT to be said for the peace of mind not having to make rent/mortgage payments. I built my house in 2005 (23 at the time) and in 2009 my business got absolutely hammered with the economic downturn. Having that free-and-clear house was a lifesaver. If I had any sort of mortgage payment I almost certainly would have lost my house like many others did during the downturn.

    "And, I’m the type of person who keeps a large amount in our emergency fund. Even though we will probably never have to tap into it, I still want it."

    I do keep a good amount of cash handy, but for my true emergency fund I have a HELOC on my house. I have a 3.74% rate, it cost me absolutely nothing to set up, and I only pay interest on the amount I use. So, it's not like having that money in my house makes it completely inaccessible.

    I get a kick out of it when people tell me "but you're missing out on the mortgage interest deduction!" For some reason spending a dollar to save a quarter isn't too appealing to me. I'd rather keep the whole dollar.

    With that said, I don't think there is a right or wrong answer as to whether it's better to pay off a mortgage early or try to invest that money elsewhere. First, it is a personal choice. (How much is peace of mind and being completely debt free worth to you?) Second, you can only see if you made the best decision in hindsight. If you pay your house off early rather than investing in the stock market, and the stock market decides to have a correction for the rest of the year, then you made the right decision. If the stock market goes up more than the rate of your loan, then you made the wrong decision. Sadly, you don't get to know beforehand which is the right decision.

    1. I especially agree with you about the mortgage interest deduction argument If that's a person's only argument, I don't see the point.

  37. I'm with you on this. I would definitely keep the money invested in housing in some way. You could get a bigger house and for me, as I'm older, I might buy another place to rent out. I totally agree with making the most of the low interest rates right now.
    My recent post Unleash Your Thin Diet: What I Eat (Wk 8)

  38. I just wrote on this as well. Basically, I'm going to pay the mortgage down with 50% of my extra income, and put 50% away in investments and other savings. That way I'm not sinking all my cash into real estate, but instead taking a more balanced approach.
    My recent post Budget Friday Voting!

    1. It seems like everyone is writing about this right now! haha it must be a hot topic 🙂 We're going to take a more balance approach as well.

  39. Family Fandango

    We are getting a pretty low rate too, so we are just taking it month by month. I'm of mixed minds about paying it down in advance, mostly because I want to keep some assets liquid "just in case" and we never seem to get past that emergency fund savings…
    My recent post Moving on…

    1. I'm with you on this 🙂

  40. 1stmillionhardest

    Paying mine off early isn't a focus…yet. I've got a pretty darn low interest rate and the "extra" money I have that could go towards paying it off faster is better suited for other goals right now. Down the road I'll make paying off the mortgage more of a priority, but right now it's just not that important.

    1. I'm in the same position. Right now it's not a focus, but soon we won't have any debt.

  41. Brian @ Luke1428

    Great post Michelle! I think people underestimate the psychological benefit of completely eliminating debt as quickly as possible. No debt = more freedom. That's why we are pushing to pay off our mortgage by the end of this year.

    1. Thanks! And I agree.

  42. Mr. Bonner

    Always a tough call that's a balance of emotions and financial goals.

    You might want to take a look at your current amortization table for your mortgage. Maybe I missed it in the article, but you said you could pay it off in a year if you paid it down quickly. How long would it take to pay it off slowly? If you don't have more than a few years left then you are probably paying mostly principal and just a small amount of interest. If that is the case you might want to put the money to work elsewhere.

    We don't have any equity right now, so we're looking to put every last penny we have into our condo and even borrow from my 401k and put that money into our home so we can get to 20% equity within the next month. We've started the refinance process and our new mortgage payment will be a huge drop from what it currently is, which nearly offsets the cost of the 401k loan. When my 401k loan is paid back in 5 years we should have a decent amount of equity in our condo, a mid to low 3% interest rate and after the refi we will be saving our extra money, so we should have a healthy down payment saved up. We plan on buying another place in roughly 5-6 years and renting our condo. At that time I don't think we will pay down our condo quickly, but I would definitely consider paying down the house quickly if the interest rate is high and simply for peace of mind.
    My recent post The rich got richer and so can the rest of us

    1. We bought our house 4 years ago with a 30 year loan. We have only made very minimal extra payments, so essentially there is still 26 years left on the loan if we don't make extra payments.

  43. cjb

    If I were in a home I'd want to stay in, I'd want to hurry up and pay it off. $1000 a month would go a long way to getting my retirement goals set up (since I'm a little behind in that department). Also, paying off the mortgage would mean less risk. I wouldn't have to work to pay bills, I could work because I want to and I could travel or go part time…something I can't do with a mortgage payment.

    In my area, the average mortgage payment is 2k. What would you do with 2k a month. Then add all your utilities and taxes…ouch.

    Just on my little condo alone…my mortgage interest was about 5500 and I have a nice interest rate…not great but I'm not willing to refinance because I hope to be moving….I hope to be moving next year and the cost outweighs any savings.

    If I do end up having to keep it and rent it, then I will treat it like any debt and hurry up and pay it. But my hope is to sell it and run.

    I just really don't see the advantages to keeping a mortgage payment…I'd rather give 5k to my favorite charity, than to some huge bank…and still get the right off.

    1. I agree! Luckily our mortgage is less than $1,000 currently.

  44. Canadianbudgetbinder

    We should have the mortgage paid in full if all goes well with paperwork and red tape by the end of May or sometime in June. The money is saved. We just want to have no debt and then take that extra money every month and continue investing and see where life takes us. Nothing over the top, just simple.
    My recent post PF Weekly Reading List #17-Customer Service, Business Suicide And Social Media

    1. Wow that is awesome! 🙂

  45. I think that paying off a home early is always a good idea. I listen to Dave Ramsey a lot, and he gets asked this question many times on his show.

    1. I agree Nicole. Thanks for stopping by.

  46. shopaholicsavers

    Just wanted to let you know that I linked to this post on my site here because I thought this was a great post!
    My recent post 5-5-13 Shopaholic Savers Weekend Update- Our New Look!

  47. With an interest rate at 3.75% on a 30 year fixed loan through the VA I'm not concerned with paying our loan off early in the overall schemes of things at the moment. But I can certainly understand why people would to rid themselves of that debt.
    My recent post Website Case Studies And The Fallacy Behind Them

    1. There are positives for both ways, so that's what makes this decision a hard one 🙂

  48. The next house will be a long time home, so no worries there 🙂

  49. I agree, it would be nice to have the mortgage paid off.

  50. Sam@CreditCardShoppe

    We do have our house paid off completely. While some may argue that it is wiser to not tie up your cash in a house, we felt that the freedom of not having a mortgage was well worth it. We have no house payment and know that if anything happened, we would at least have our home….and the bank can never take it away. And that’s a pretty good feeling.

  51. I am definitely with you on this!

  52. I’m glad you discuss the pros and cons of this issue. It’s disconcerting when people characterize all debt as bad. Some debt is good, when it allows you to make investments you wouldn’t otherwise make. Like so many commenters mentioned, a mortgage less than 5% allows you to use your excess cash flow to invest in retirement accounts or the stock market, reap an average 10% return, and essentially keep the difference in yields. However, if you are sitting on a boatload of cash in your checking account earning less than 1%, use a good portion of it to pay down your debt.
    More than anything, I think the idea of “owing” a bank or company just has a psychological stigma.

  53. The wifey and I have not plans to pay off our house early at this point. We still have student loans and the rate we got is so low we can invest the money into something else. In the future we are thinking about the 15 year make and having it paid off but then we would have a better understand of how close we are to our financial goals. I like that you put the pros and cons to each.

  54. Athena

    I favor paying off the mortgage early. I have an MBA from a top business school and I work for a Big4 consulting firm in strategic finance. I know a lot about finance.

    Financial advisers often provide advice to individuals based on finance theories about how the capital structure in corporations should be managed. There is a [huge] difference in how capital structure is approached for an individual versus a corporation. A corporation has a lot of tools to manage risk that an individual (or couple) do not have.

    Of course, you should pay off high interest debt and build up a cash reserve first. But, having done those things, if you are generating extra cash you should apply it to your mortgage.

    First, the mortgage deduction is a wash and at best it is not a factor. People who bring that issue up have never run the numbers themselves taking all factors into consideration. It you are paying AMT then the mortgage interest deduction argument is laughable. Second, financial advisers will often tell you how you can make a better returns by putting the money at risk by investing in the stock market. That is nonsense. For the last 15 years the market has gone sideways at best. The models financial advisers present where you are making 7% per year consistently are a joke. Counting on the market to provide good returns over a 15 to 30 year period is also an unrealistic expectation.

    In addition, our leaders in Washington DC are making decisions that have and will continue to result in tragic consequences for investors and the economy. If you invest the money you have to take a risk on the companies/funds you are investing in (could be good or bad), the overall economy (could be good or bad), and the policies of the government (consistently bad). As government debt and unfunded obligations snowball you are taking the risk that the government might confiscate financial holdings someday.

    Just in the last 15 years we have had two dramatic plunges in the stock market that were 100% attributable to bad policies from Washington DC. And the medicine that the politicians prescribed is more of the same. The politicians (both Republican and Democrat) in Washington DC bailed out their friends by confiscating your financial holdings (in a tricky way). When government prints money or credits money to the accounts of banks at the Federal Reserve it is stealing value from the financial holdings of the people. The government is confiscating people’s wealth without them knowing about it. Outright confiscation is just one step away. Outright confiscation was authorized by the Dodd-Frank banking reform bill that passed during Obama’s first term.

    Think about what you get if you pay off your mortgage. You are debt free. You have to worry less about job loss. You can retire earlier. You could afford to take a less stressful job with lower pay if you choose. You know you will always have a roof over your head. After paying off the debt you have freed up cash flow. While it is easy for government to confiscate financial holdings it is very hard for government to confiscate real estate holdings. You have a economically and emotionally valuable asset to leave to your children. You have all this guaranteed.

    One more thing to remember. A lot of financial advisers make commissions on the sale of certain financial assets. They may charge fees based on the amount of money you are investing in the stock market. They have a personal financial interest in convincing you to invest in the market rather than paying off your mortgage.

    If you are investing in an education or a business or paying medical bills then paying off the mortgage might not be the right thing to do at the moment. But for most people in their working career, eliminating the mortgage is a smart thing to do.

  55. Nice article…… i still struggle in balancing my home loan and investing in shares. As is see the ROI from shares is higher than home interest, so i kinda of do 7:3 split.

  56. I would definitely try to pay off my home early and have gone so far as increasing the over-payments as well as making a few extra payments per year. The interest rate at the moment for my mortgage is 4.74% and the way I see it is paying more means spending less on my mortgage in the future which means I will have more income to spend on the things I really enjoy. It would be such a liberating feeling and would unleash your from the burden of debt and give you the green light to pursue your dreams. Great post, really enjoyed that.

  57. MBM

    I see a lot of value in doing that. Debt equals risk, and by having no mortgage, you reduce the risk that comes with a loss of income. Who knows what life will throw at you, but if you have no mortgage, you at least don’t need to worry about losing the roof over your head if you run into financial problems.

  58. Oh, I’m pay it off slowly all the way. Something I learned in my early 20s that has stuck with me ever since was to look at the interest rates on all debts and likely returns on all investments. So, massive credit card debt with high interest rates, anybody should pay off first.

    Regarding my mortgage, I was lucky to get a 3.25% interest rate, and I expect about 10% on average from the stock market, so I always invest in stocks first and do the minimum payments on the house.

  59. garry burgess

    I paid off first and second house as soon as I could. Debt tends to act like Cancer. If you don’t have any, then you tend to want to keep it that way. No car loans, no student loans, no credit card debt, no furnaces on hydro debt, no anything debt -ever, for any reason. There are always risks with investment, and if your portfolio is down by 50%, you might start wishing that you had paid off your mortgage first.

    But I’m a person who has lived through very high interest rates, and it’s hard to forget, and hard to believe that double digit rates won’t return. If they do return, there is going to be a financial slaughter.

  60. Nightvid Cole

    If I were in your situation, I’d pay off the mortgage and start saving the payments (plus the property tax and maintenance savings from continuing in the starter house) to buy the next house cash. Starter home your current one may be, but c’mon, is a little deferred gratification really such a horrible thing? To be DEBT FREEEEEEE!!!?

  61. G

    Never borrow from retirement it is protected from bankruptcy you will also lose 10% in fees and penalties and you pay tax on the money twice.