There’s Actually One Good Reason to Pay Off Your Mortgage Early. Suze Orman Explains What It Is

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If you’re on the fence about early mortgage payoff, this advice could help you decide. 

Most people who obtained a mortgage in recent years have an interest rate of around 4% or below (although rates have gone up much higher this year). If you have a mortgage at a reasonable rate, paying it off early doesn’t make a lot of sense.

Your return on investment from early mortgage payoff is just the saved interest. Since you can earn an average annual return of around 10% (over the long term) by investing in a pretty safe fund that tracks the S&P 500, you’re usually better off investing in a brokerage account rather than sending extra money to your mortgage lender.

That’s especially true since mortgage interest can be tax deductible if you itemize. Since your payments won’t change over time if you have a fixed-rate loan, you essentially pay off your home with money that’s worth less each year due to inflation.

Still, while paying off your mortgage early probably isn’t the best financial move and doesn’t make a lot of sense when you do the math, there is one reason why you might want to get your home loan paid off ahead of schedule.

This is the best reason for early mortgage payoff

Finance expert Suze Orman addressed the issue of early mortgage payoff in a podcast episode. A listener wrote in and said that she was thinking about paying off her mortgage early but her financial advisor told her not to do so because she could earn returns by investing that were higher than the 4% interest on her home loan.

The advisor is right about that. But — and this is a big but — the listener said that she wanted to pay off her home ahead of schedule because doing so would make her feel secure. And, in response, Orman made a strong argument that early mortgage payoff can make sense if doing so would provide that financial security most people crave.

“Money is never the end goal,” Orman said. “Making more money is never the end goal if during the process of you making money make somebody feel insecure because when somebody gets insecure, they are powerless and when they are powerless, they make mistakes with money of all kinds.”

While early mortgage payoff might not be the financially sound choice for most people, as Orman points out, you don’t always have to make choices with your money that maximize your net worth at the expense of your happiness.

If you truly feel like paying off your mortgage would give you the peace of mind you crave, doing that as a priority over investing might make sense even if your net worth doesn’t end up quite as high as it could have because this approach is likely to make you happier in the long run.

Is paying off your mortgage early right for you?

If you feel passionate about paying off your mortgage, there’s nothing wrong with doing that as long as you’re not jeopardizing other important financial goals first. You should not, for example, pay off your mortgage early if doing so would mean you can’t afford to invest for retirement or if extra mortgage payments make it take longer for you to pay off high-interest credit card debt.

Just make sure you’re aware of the opportunity cost, and you’re willing to accept a lower ROI in exchange for the added financial security that comes from owning your own home outright instead of having a loan with the bank.

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