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There are other items you may want to check off your list first.
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Many people who own homes carry a mortgage for many years. In fact, it’s common to spend 30 years (or more) paying off a home.
A lot of people start out with a 30-year mortgage and refinance it to another 30-year loan at some point down the line. So all told, many people who buy homes in their 20s and 30s just manage to get their mortgages paid off in time for retirement. And some don’t even manage to enter retirement free of housing debt.
If you owe money on a mortgage, you may be eager to pay it off ahead of schedule. And you’re not alone. In a recent Principal survey, 34% of respondents list paying off a mortgage as a top financial goal. But here’s why you may want other items to top your list.
It’s a matter of limited upside
The main benefit of paying off a mortgage early is saving money on interest. But if you have a fairly low interest rate on your mortgage, then paying it off early may not make sense.
In fact, a lot of people refinanced their mortgages back in mid-2020 and 2021, when borrowing rates were super low. If you did the same, you may be paying somewhere in the ballpark of 3% on your mortgage right now, assuming you have a 30-year loan.
But if you have a high-yield savings account, you may find you’re earning the equivalent amount of interest on your money, if not more. So in that case, it makes sense to stick to your regular mortgage payment schedule and not pump extra money into your home loan.
Similarly, let’s say you’re paying 3% interest on your mortgage but are a shrewd investor whose brokerage account generally delivers an average yearly 10% return. In that case, it makes much more sense to put extra money into investments rather than put it into a mortgage that isn’t very expensive.
Plus, don’t forget that if you itemize on your tax return (as opposed to claiming the standard deduction), you can deduct the cost of mortgage interest for a nice tax break. So that’s just one added reason not to worry so much about paying off a mortgage early.
Work toward other goals first
For some people, shedding a mortgage isn’t just a matter of saving money on interest — it’s a matter of not having a monthly debt payment hanging over their heads. There’s definitely a benefit to that.
But remember, mortgage debt is something a lot of people have and carry for years. And if your mortgage has a low interest rate attached to it, then you’re generally better off using your spare cash for other purposes, like funding a retirement savings plan.
Of course, if you happen to be stuck with a higher interest rate on your mortgage and come into extra money (say, you’re promoted and get a huge salary bump), then an early mortgage payoff could make sense. But otherwise, you may want to use your extra money for other goals and accept that your mortgage might be with you for many years.
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