Should You Pay Off Your Mortgage Early? (Only If You Want To)

Last updated on August 9, 2023

Just do the math (the mathematically inclined will tell you).

Oh, no (the risk takers will say).

Are you crazy? Of course, yes (the risk-averse will scream).

So what do you do?

Well, my friend, the answer lies with you.

My job here today is to:

  • Present the pros and cons for each
  • Help you decide which camp you’re in
  • And answer some of your most common questions

But make no mistake. This should be your (and yours alone) decision. Don’t ever let anyone tell you otherwise. It’s your money. And your peace of mind. And that’s no one else’s business. But yours.

Let’s get started.


What you'll learn:

β“΅ Pros and cons of paying off your mortgage early

So, what are the pros and cons of paying off your mortgage early?

First, let’s talk about the pros.

❖ Pros

By paying off your mortgage early, you can:

β—† Save a significant amount of money on interest payments

The longer you have a mortgage, the more interest you will pay. And by paying it off early, you are saving yourself thousands of hard-earned cash in the long run.

Additionally, by paying off your mortgage early you can:

β—† Increase your home equity

Because the more you add to your mortgage, the more of your house you own. Which can be a great investment in the long run since you can use the extra equity to buy something else. Like a second home to rent out. And create another stream of income for you.

Furthermore, paying off your mortgage can help you:

β—† Have peace of mind

Knowing that you own your home outright and you won’t have to worry about a mortgage payment for the rest of your life, can be a great relief for many people. If that’s you, then consider paying it off.

It can also help you:

β—† Have more financial flexibility

Since you won’t have to allocate as much money towards your mortgage payments, allowing you to save or invest more.

On the other hand, paying off your mortgage early also has its cons.

❖ Cons

One is that by paying off your mortgage early, you may be:

β—† Tying up a lot of cash

This money could potentially be used for other investments. For example, if you have a low-interest mortgage, it may be more beneficial to invest that extra money into something that has a higher return on investment.

Additionally, by paying off your mortgage early, you may be:

β—† Missing out on potential tax benefits

Such as deducting the interest paid on your mortgage from your taxes.

Moreover, if you don’t have a lot of savings, paying off your mortgage early:

β—† Can be risky

As you won’t have a cushion to fall back on in case of unexpected expenses or financial emergencies. It’s important to make sure you have a solid emergency fund before committing to paying off your mortgage early.

Another con is that by paying off your mortgage early, you may be:

β—† Sacrificing your lifestyle

And missing out on other experiences or opportunities. Paying off your mortgage early requires a significant amount of money and effort. And if you don’t have a lot of disposable income, you may have to make sacrifices in other areas of your life.

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All in all, there are pros and cons to each decision. So always weigh everything and consider your own financial situation (and goals) before making a decision. And remember: it’s always a good idea to consult with a financial advisor before making any big financial decisions (if you feel the need for it).


β“Ά Step-by-step guide on how to pay off your mortgage early

So, what if you really want to pay off your mortgage early? How do you do it?

❖ Step 1: Create a budget

The first step in paying off your mortgage early is to create a budget. This will help you understand your income and expenses. And identify areas where you can cut back. In order to put more money towards your mortgage payments.

❖ Step 2: Set a goal and a plan

Once you’ve created a budget, set a goal for when you want to pay off your mortgage. And create a plan on how to achieve it. This can include increasing your mortgage payments, making bi-weekly payments, or making lump sum payments (whatever works for you).

❖ Step 3: Find extra money to put towards your mortgage payments

Look for ways to increase your income or reduce your expenses. This can include taking on a side hustle, cutting back on unnecessary expenses, or selling items you no longer need (we all have plenty of those, right?).

❖ Step 4: Make extra payments

Once you’ve found extra money to put towards your mortgage payments, make sure to put it towards your mortgage as soon as possible. The earlier you make extra payments, the more interest you will save.

❖ Step 5: Track your progress

Keep track of your progress and regularly check in on your mortgage balance. Seeing the progress you are making can be a great motivation to keep going.

It’s important to note that some mortgages may have prepayment penalties. So be sure to check with your lender to understand any fees (or penalties) that may apply before making extra payments.


β“· Top 8 factors to consider when deciding whether to pay off your mortgage early

Paying off your mortgage early is not a one-size-fits-all solution. So it’s important to consider your own financial situation and goals before making a decision. These include:

❖ Risk tolerance

Paying off your mortgage early requires a significant amount of money. And if you don’t have a lot of savings, it can be risky. Consider your risk tolerance and make sure you have a solid emergency fund before committing to paying off your mortgage early.

❖ Interest rate

If you have a low-interest rate mortgage, it may be more beneficial to invest that extra money into something that has a higher return on investment.

❖ Tax benefits

Consider the tax benefits of paying off a mortgage early. The interest you pay on a mortgage is tax-deductible. So you might be able to save more money on taxes. By keeping the mortgage and investing the extra money elsewhere.

❖ Financial situation

Paying off a mortgage early can be a good idea if you have a stable income and a good credit score. And if you have enough money to cover your other financial goals and emergencies.

❖ Lifestyle

Paying off a mortgage early can provide peace of mind and reduce financial stress. But it can also limit your ability to have a certain lifestyle. Or to pursue certain opportunities.

❖ Cushion to fall back on

Consider if you have a cushion to fall back on in case of emergencies or unexpected expenses. It is important to have an emergency fund before committing to paying off your mortgage early.

❖ Future plans

Consider your future plans and goals. If you plan to retire early, paying off a mortgage early can be a good idea. But if you plan to sell your home in the near future, it may not be necessary.

❖ Other financial goals

Consider your other financial goals. Paying off a mortgage early can be a good idea if it allows you to achieve your other financial goals. Such as saving for retirement. Or investing in other assets.


β“Έ Top 5 mortgage payoff FAQ

When considering paying off your mortgage early, homeowners often have a lot of questions. Here are some of the most common questions and answers:

❖ Should I pay off my mortgage early or invest the money elsewhere?

It depends on your personal financial situation and goals. If you have a low-interest-rate mortgage. And are able to get a higher return on investment elsewhere. Then it may be more beneficial to invest the money.

However, if you have a high-interest-rate mortgage. And would rather have the peace of mind of owning your home outright. Then paying off your mortgage early may be the better option.

❖ How much should I put towards extra mortgage payments?

It depends on your budget and financial goals. A general rule of thumb is to aim to pay an extra 1/12th of your mortgage payment each month. However, you can adjust this amount based on your own financial situation and goals.

❖ Are there penalties for paying off a mortgage early?

Some mortgages may have prepayment penalties. So be sure to check with your lender to understand any fees or penalties that may apply before making extra payments.

❖ Is it better to pay off my mortgage early or put the money in a retirement account?

It depends on your personal financial situation and goals. Both paying off a mortgage early and saving for retirement are important financial goals. And it’s important to consider both when making a decision.

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❖ Will my credit score be affected if I pay off my mortgage early?

Generally, paying off your mortgage early will have a positive impact on your credit score. As it shows you are responsible with your debt. And have a good payment history.

It’s important to remember that every homeowner’s situation is unique. And what works for one person may not work for another. Be sure to consult with a financial advisor to determine the best course of action for your own personal financial situation.


β“Ή Good debt vs bad debt

❖ What’s a good debt?

Good debt is debt that is used to invest in assets that appreciate in value. Such as a mortgage on a home or a loan for education. This type of debt can be beneficial in the long run as it can help you build equity and increase your net worth.

β—† Examples of good debt

  • A mortgage on a primary residence
  • A loan for education that will increase earning potential
  • A loan to start a business

❖ What’s a bad debt?

On the other hand, bad debt is debt that is used to purchase depreciating assets (or non-essential items). Such as credit card debt, personal loans for vacations, or car loans. This type of debt can be detrimental to your finances as it does not provide any long-term benefits. It only puts you under a financial burden.

A mortgage can generally be considered good debt as long as it’s used to purchase a primary residence. And the borrower has the ability to make the payments. And the mortgage interest rate is low. This type of debt can be beneficial as it helps to build equity. nd can be a good investment in the long term.

β—† Examples of bad debt

  • Credit card debt
  • Personal loans for vacations
  • Car loans

Overall, the idea of good debt vs bad debt is to help people understand that not all debt is the same. And it’s important to understand the difference between the two when making financial decisions.


β“Ί Pay off any bad debt (fast)

Bad debt, as I mentioned earlier, is debt that is used to purchase depreciating assets or non-essential items. This type of debt can be detrimental to your finances and can quickly spiral out of control. And can be difficult to pay off, as the interest charges add up quickly.

❖ Paying off bad debt can help

β—† Improve credit score

High levels of bad debt can negatively impact your credit score. By paying off this debt, you can improve your credit score and make it easier to get approved for loans in the future.

β—† Increase cash flow

High levels of bad debt can also put a strain on your cash flow. By paying off this debt, you can free up more money in your budget to put towards other financial goals.

β—† Reduce stress and anxiety

Carrying high levels of bad debt can be a source of stress and anxiety. By paying off this debt, you can reduce these negative emotions and improve your overall well-being.

β—† Achieve financial freedom

Having high levels of bad debt can be a barrier to achieving financial freedom. Paying off bad debt is a step towards achieving financial freedom as it eliminates a significant financial burden.

Overall, paying off bad debt is a crucial step in achieving financial stability. And reaching your financial goals. It’s important to focus on paying off high-interest bad debt first. As it can have a significant impact on your overall financial health.

Prioritizing the debt with the highest interest rate will help you to save money on interest charges in the long run. Additionally, it’s important to have a plan in place to avoid falling back into bad debt. Such as creating a budget, avoiding unnecessary expenses, and living below your means.

But make no mistake, achieving financial freedom and stability isn’t an overnight process (like most things). It requires discipline and a plan.


β“» Additional points to consider

❖ Ways to pay off bad debt

One popular method is the snowball method. You pay off the smallest debts first, regardless of interest rate. This gives you the motivation needed as it allows you to quickly see progress and cross off debts.

use the snowball method to pay off bad debt
Photo by Katie Gerrard on Unsplash

Another popular method is the avalanche method. Here you pay off the debt with the highest interest rate first. This method saves you more money in the long run as it reduces the amount of interest paid.

Another way is through debt consolidation. Meaning you combine multiple high-interest loans into one lower-interest loan. This can make payments more manageable and save you money in the long run.

❖ Benefits of refinancing your mortgage

Refinancing can lower your interest rate. This can help you save money on interest charges and pay off your mortgage early. It can also help you to lower your monthly mortgage payments, which can free up more money for other expenses.

Additionally, refinancing can also give you the option to switch from an adjustable-rate mortgage to a fixed-rate mortgage. This can provide more stability and predictability in your monthly mortgage payments.

❖ Tips on how to increase income and reduce expenses

Some ways to increase income include getting a side hustle, starting a small business, or asking for a raise at work. Reducing expenses can include cutting back on unnecessary expenses. Such as eating out, subscriptions, and entertainment.

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Another way is to negotiate bills (such as cable and internet). And look for ways to save on recurring expenses.

❖ Have a good emergency fund

Having an emergency fund can help you to cover unexpected expenses (without resorting to bad debt). It’s important to have at least 3 to 6 months’ worth (ideally 12) of living expenses saved up in an emergency fund.

❖ Create a budget and track expenses

Creating a budget can help you understand your income and expenses. And to identify areas where you can cut back on expenses. Tracking expenses can help you to stay on top of your spending and ensure that you stay within your budget.

Before we proceed to suggested reading, here are some quotes to get inspired from:


β“Ό Top 7 mortgage payoff quotes

“A house is a debt-trap that is always hungry for more.”

β€” Robert Kiyosaki

This quote highlights the idea that a mortgage can be a significant financial burden that requires a lifetime of payments. Paying off a mortgage early can help to free up more money. And reduce the financial burden.

“The biggest mistake people make when they buy a home is they don’t think about the long-term implications.”

β€” Suze Orman

This quote emphasizes the importance of considering the long-term financial implications of a mortgage. And how paying off a mortgage early can help to improve your overall financial stability.

“The best investment you can make is in your own abilities. Anything you can do to develop your own abilities is likely to be more productive in the long run than investing in any other financial assets.”

β€” Warren Buffett

This quote highlights the importance of investing in yourself and your abilities as a way to increase your earning potential and achieve financial success.

“The biggest challenge in achieving financial freedom is not knowledge. It’s psychology.”

β€” T. Harv Eker

This quote emphasizes the importance of understanding your own mindset and behavior when it comes to money. And how it affects your ability to achieve financial freedom.

“You can’t save a dollar out of every paycheck and expect to become a millionaire. You must learn to live on less than you make, and invest the surplus in assets that appreciate in value.”

β€” Robert Kiyosaki

This quote emphasizes the importance of living below your means and investing your surplus in assets that appreciate in value in order to achieve financial success.

“The more you save, the more you’ll have. The more you spend, the less you’ll have.”

β€” Zig Ziglar

This quote highlights the simple β€” yet powerful β€” concept of saving more and spending less as a way to achieve financial success.

“Paying off your mortgage early is the equivalent of getting a guaranteed return equal to your mortgage interest rate.”

β€” Dave Ramsey

This quote highlights the financial benefits of paying off your mortgage early. Specifically the guaranteed return on investment in the form of interest savings.

These quotes provide inspiration and food for thought. It’s important to keep in mind that personal finance isn’t just about numbers and calculations. But also about mindset and behavior.


β“½ Top 5 mortgage payoff books

“The Mortgage Freedom for Life” by David Bach

This book provides a step-by-step plan for paying off your mortgage in half the time (without increasing your payments). David Bach, uses a concept called the “Latte Factor”. And shows how small changes in your spending habits can free up thousands of dollars.

So you can put towards your mortgage. He also includes a guide to negotiating with your lender to reduce your interest rate. And provides tips on how to use your home’s equity to pay off your mortgage faster.

“Mortgage-Free! Radical Strategies for Paying Off Your Home Loan Faster and Living Mortgage-Free” by Rob Roy

The book provides strategies and techniques for paying off your mortgage early and achieving financial freedom. Rob Roy, shares his own story of paying off his mortgage in just seven years.

And provides practical advice on how to create a budget. Reduce expenses. And increase income to free up more money to put towards your mortgage. He also covers the psychology of money. And how to change your mindset to achieve financial success.

“The Total Money Makeover” by Dave Ramsey

This book provides a step-by-step plan for paying off debt, building an emergency fund, and investing for the future. Dave Ramsey shares his own story of overcoming debt and provides practical (and actionable) advice for achieving financial success.

He emphasizes the importance of creating a budget, living below your means, and investing in appreciating assets.

“Your Money or Your Life” by Vicki Robin and Joe Dominguez

This is a comprehensive program for transforming your relationship with money and achieving financial independence. The book teaches you how to track your spending, create a budget, and eliminate unnecessary expenses.

It also provides techniques for increasing your income. And guides you through the process of creating a plan for achieving financial independence.

“The Simple Path to Wealth” by JL Collins

Get practical advice on personal finance, investing, and achieving financial independence. The author shares his own story of achieving financial independence.

And provides a simple and straightforward approach to investing in low-cost index funds. He also emphasizes the importance of living below your means and saving for the long-term.


β“Ύ Suggested tools and calculators

❖ Online mortgage payoff calculators

These calculators can help you understand the potential savings (and timeline) of paying off your mortgage early by inputting your mortgage information and the extra payments you want to make.

❖ Financial advisors

Consulting with a financial advisor would be the best way to understand your specific financial situation. And determine the best course of action for paying off your mortgage early. They can help you make informed decisions about your finances. And create a plan that is tailored to your specific goals and needs.

❖ Online resources

There are many online resources. Such as budgeting apps, financial calculators, and online support groups that can help you to stay on track with your financial goals.

β—† Budgeting apps

β—† Financial calculators

β—† Online support groups

Such as Dave Ramsey’s Financial Peace University or FIRE (Financial Independence, Retire Early) communities can provide additional support and motivation for achieving financial goals.


Final thoughts

Just my 2 cents, before making a decision, imagine what your life would be like if you paid off your mortgage early.

imagine what your life would be if you paid off your mortgage early
Photo by Peter Burdon on Unsplash

Is that a good thought? If yes, then by all means go and pay off your mortgage early.

If it doesn’t make a difference. And if you’d rather have the extra cash (to invest or just save), then go do just that.

My personal opinion is that if you have a high-paying job. And you already have a well-sized nest egg. Then paying off your mortgage won’t break the bank. And won’t ruin your investment potential either.

So it might be wise to go and pay it off. Just to have that peace of mind that your family has a place to stay (no matter what). At the end of the day, whatever we do, we do it for our families, right?


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Pavlos Written by:

Hey β€” It’s Pavlos. Just another human sharing my thoughts on all things money. Nothing more, nothing less.