Here’s Why I’m Paying Interest on My Mortgage — Even Though I Could Pay It Off Right Now

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A writer explains why it’s worth it to her to carry a mortgage she has the cash to pay off. Read on to follow her logic. 

Many people have the goal of paying off their homes early. I don’t.

Now, the funny thing is that I have enough money to pay off my mortgage loan in full right now. But I instead plan to carry that mortgage for over a decade. Here’s why.

It’s a matter of financial sense

These days, the average 15-year mortgage rate is 5.64%, according to Freddie Mac. But in the summer of 2020, I refinanced my mortgage when borrowing rates dropped to record lows. And between lower borrowing costs and the fact that I had a credit score in the 800s, I was able to lock in a rate of under 3% on my 15-year loan.

Meanwhile, these days, I’m earning more than 3% on the money I have in my savings account. And I also have different investments that are generating, or have the potential to generate, much more of a return than that.

Because of this, it makes sense for me to carry my mortgage for the remainder of my 15-year loan term despite having the ability to pay off my home right now. Not only am I paying less interest on my mortgage than I’m earning elsewhere, but because I itemize on my tax returns, my mortgage interest serves as a nice tax deduction. So that makes my choice to carry my mortgage an even savvier one.

Of course, I’d feel differently if I were looking at a mortgage with a higher interest rate attached to it. In fact, if I were looking at a rate of 5.64% like the average 15-year mortgage borrower today, I’d probably think about accelerating my payments or even paying off my loan balance in full. But because I have such a great rate locked in, I’m good to continue sending my lender a payment every month, even if it means spending money on the interest portion of my loan.

Should you try to pay off your mortgage early?

If you signed a mortgage recently, you may have gotten stuck with an interest rate in the 5% range or even higher. In fact, many people sign 30-year loans because they result in lower monthly payments than 15-year loans, and these days, the average rate on a loan with that term is 6.28%, per Freddie Mac.

If you’re paying a lot of interest on your mortgage, trying to shed that debt sooner could make financial sense. And while you may not be able to pay off your home on the spot, shaving a few years off your repayment period could result in a nice amount of savings.

But remember, mortgage rates have the potential to drop over time. We may not see rates in the 4% range anytime soon. But in a few years from now, borrowing could end up being a lot less expensive on a whole. So if you’re tired of losing so much money to mortgage interest but you’re not in a position to pay off your home in one fell swoop, keep an eye on rates over time and work on boosting your credit (or maintaining an already great score) so you can pounce on the opportunity to refinance once it arises.

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