Skip to Content

Is it smart to pay off your mortgage ASAP?

Quick answer

There are pros and cons to paying off your mortgage early. The main benefits are that you’ll save money on interest and own your home outright sooner. However, it also ties up money that could be invested elsewhere for potentially higher returns. Generally it makes sense to pay off your mortgage early if:

  • You have a high interest rate mortgage (over 4-5%)
  • You plan to stay in the home long-term
  • You don’t have other higher interest debt
  • You have enough savings and investments
  • You want the security of owning your home

If your mortgage rate is low, you may want to just make regular payments and invest extra funds instead. Consider your full financial situation.

Should you make extra mortgage payments?

Paying off your mortgage early can make a lot of sense in the right circumstances. Here are some key factors to consider:

Your mortgage interest rate

The higher your mortgage rate, the more impact extra payments can have. Most mortgages today are in the 3-5% range. If your rate is above 5%, paying off the mortgage faster could save you thousands in interest costs over the long run. At lower rates, the savings may be more modest. Run the numbers to see how much extra payments could accelerate payoff and reduce total interest paid.

Your time horizon

The longer you plan to stay in your home, the more worthwhile it is to pay off the mortgage faster. If you’ll move again in just a few years, extra payments may not produce enough savings to justify tying up the cash. But over 10-15 years or more, the savings can really add up. Make a realistic assessment of your long-term plans.

Opportunity cost

Money put toward extra mortgage principal could also be invested elsewhere. While paying off a 4% mortgage guarantees 4% returns, investing may yield higher average long-term gains. Evaluate whether you’re comfortable giving up potential higher investment returns for the certainty of eliminating your mortgage debt faster.

Other debts

It usually doesn’t make sense to make extra mortgage payments if you have high interest credit card, auto or personal loan debt. Pay those off first since mortgage rates are generally lower. Only focus extra funds on the mortgage once other debts are paid off.

Emergency savings

Financial experts recommend having 3-6 months of living expenses set aside in an emergency fund before making extra mortgage payments. Make sure you have a strong cash safety net first.

Retirement contributions

Many experts suggest fully funding retirement accounts like 401(k)s up to any employer match before making extra mortgage payments. Make sure you’re saving enough for the future.

Pros of paying off mortgage early

Here are some of the main benefits of making extra mortgage payments and paying off your home loan faster:

Interest savings

Each extra mortgage payment goes directly toward reducing your principal balance. This reduces the total interest you pay over the life of the loan. The savings can really add up, especially on a larger mortgage or at a higher interest rate.

Pay off mortgage sooner

Making consistent extra payments each month can shave years off your payoff timeline. Even just an extra $100 / month can make a difference. Run the numbers to see how much faster you can be mortgage-free.

Equity and ownership

As you pay down your mortgage, you build equity in your home. This increases your net worth. Eliminating your mortgage also means fully owning your home sooner.

Reduced monthly expenses

Once your mortgage is paid off, your required housing payment drops way down. You’ll just need to budget for property taxes, insurance and maintenance costs. This can free up significant monthly cash flow.

Peace of mind

Owning your home free and clear provides financial security and stability. You reduce a major monthly obligation and risk of foreclosure.

Forced savings

Extra mortgage payments force a type of savings each month. This can help ensure you’re steadily building wealth.

Cons of paying mortgage off early

While paying your mortgage off ASAP has advantages, there are also some drawbacks:

Less flexibility

Extra payments tie up funds that could be used for other needs and goals. This reduces your financial flexibility month-to-month.

Lost investment opportunities

Money toward extra mortgage principal is money that can’t be invested elsewhere. You may miss out on higher returns from investing those funds.

Penalties for overpayment

Some mortgages charge prepayment penalties if you pay off the loan too early. Make sure to review your loan terms.

Mortgage interest tax deduction

Paying off your mortgage faster reduces the interest you pay. This can lower the amount of mortgage interest you can claim as a tax deduction each year.

Unknown future plans

Your circumstances may change down the road, like job relocation or a major home renovation need. Having a paid off house reduces leverage for these scenarios.

Opportunity risks

Putting extra money toward your mortgage means you may miss out on other financial opportunities as they arise, like a strong investment market.

Should you refinance your mortgage?

Refinancing your existing mortgage potentially lets you lower your interest rate and monthly payments. Here are key factors in deciding if you should refinance:

Interest rates

To make refinancing worthwhile, you’ll want to lower your current mortgage rate significantly, such as by 1% or more. Compare current rates to your existing rate to see potential savings.

Closing costs

Refinancing comes with upfront fees and closing costs, often 2-5% of your loan amount. Make sure the interest savings exceed closing costs over your time horizon.

Your time horizon

It takes time to recoup refinancing costs through a lower rate. Make sure you plan to stay in the home long enough to realize worthwhile interest savings.

Loan type

Refinancing lets you change your loan term or type, like from a 30-year to 15-year mortgage. This impacts payoff timeline and interest costs.

Cash out

Some homeowners refinance to cash out home equity for other uses, like home improvements. This should be done carefully, adding to your debt.

Run the numbers with a mortgage specialist to see if refinancing makes sense for your situation.

Should you take money out of your home?

Home equity loans or lines of credit let homeowners borrow against the equity in their home. This provides access to funds, but should be done carefully:

Interest rates

Home equity loan rates are often higher than mortgage refinance rates, so this can be an expensive way to borrow. Compare interest rates and fees.

Payback terms

Home equity loans have set repayment terms, often 10-20 years. Lines of credit have flexible draw and repayment periods. Understand the payback expectations.

Loan amount

Most home equity products let you borrow up to 80-90% of your home equity. This can put you at risk by reducing your remaining equity. Borrow only what you need.

Use of funds

It’s best to use home equity to pay off higher interest debts or make important home improvements vs discretionary spending. Have a clear plan for using the funds.

Impact on mortgage

Withdrawing home equity adds to your total debt secured by your home. This can impact mortgage refinancing options and increase foreclosure risk if used irresponsibly.

Home equity loans make sense for some major financial goals, but shouldn’t be over-used. Proceed with caution.

What are the best ways to pay off your mortgage faster?

Here are effective strategies for paying off your mortgage ahead of schedule:

Make an extra principal payment each month

Consistency is key. Add even $100 or more to your payment to go toward principal every month. This can shave years off your timeline.

Make one extra mortgage payment per year

Adding the equivalent of one extra monthly payment annually can save interest and accelerate payoff.

Pay half your annual bonus to the mortgage

Use a portion of any annual bonuses, tax refunds or other windfalls to make a lump sum principal payment.

Refinance your mortgage

Refinancing at a lower rate results in more of your payment going to principal. You can also shift to a shorter term.

Make biweekly instead of monthly payments

This effectively gives you one month extra payment per year, reducing interest costs.

Round up your payment amount

Even rounding your payment up by $10 or $20 can make a dent over time. Set up automatic rounding through your lender.

Temporarily pause retirement funding

You can pause retirement account contributions for a period to focus on extra mortgage payments (not recommended long-term).

Shift to a 15-year mortgage

Refinancing into a shorter term means more payment goes to principal. Just be sure the higher payments fit your budget.

Consistency and time are key to paying your mortgage off faster. Stick to your accelerated plan.

Tips for managing your mortgage

Here are some additional tips for managing your mortgage effectively:

  • Review your monthly statement closely – check for rate changes, added fees, allocation of payment, etc.
  • Update your home insurance information with your lender annually
  • Provide updated contact info to your lender if you move
  • Explore mortgage assistance programs if facing financial hardship
  • Consider setting up biweekly auto-payments to reduce interest
  • Sign up for online account access to easily manage your mortgage
  • Keep records of payment history in case of discrepancies
  • Monitor your credit – damaging credit can affect mortgage rates

Staying engaged with your mortgage and lender from day one can help avoid issues and ensure your loan stays in good standing.

The pros and cons of paying off your mortgage early

Pros Cons
Save money on interest payments Less flexibility with your money each month
Pay off mortgage and own home faster Lost opportunity to invest money elsewhere
Build home equity and net worth May incur prepayment penalties
Reduce monthly expenses earlier Lower mortgage interest tax deductions
Peace of mind of owning your home Unknown future plans could change
Forced monthly savings Miss out on other financial opportunities


Determining if you should pay off your mortgage early depends on your full financial situation – income, other debts, savings, investment opportunities and more. Run the numbers for your specific mortgage and circumstances.

For many homeowners, making consistent extra principal payments can pay off big in interest savings over time. But you also want to balance mortgage pay down with saving adequately for retirement, college and other goals.

Aim for a diversified financial plan. Keep an open line of communication with a mortgage specialist to explore your options fully. With prudent planning, you can target your mortgage payoff date while still enjoying financial flexibility.