It seems like common sense that if you can afford to put extra money toward your mortgage, you should.
But in some cases, you may be better off putting that money elsewhere. In fact, you could actually lower your financial stress by not paying off your mortgage early.
If the following descriptions fit you, you might be better off paying the minimum on your mortgage and focusing your funds somewhere else.
If you’re over 50, take advantage of massive discounts and financial resources
Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.
How to become a member today:
- Go here, select your free gift, and click “Join Today”
- Create your account (important!) by answering a few simple questions
- Start enjoying your discounts and perks!
Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.
You have high-interest debt
If you have extra money to put toward debt payoff, you should focus on the loan or credit card with the highest interest rate. For most people, that's not their mortgage.
Instead of throwing extra cash on top of your mortgage payment, use it to crush your debt.
Look up the interest rates on your other loans and credit cards and compare them to your mortgage interest rate. Then, try to make extra payments to reduce the loan balance with the highest interest rate.
You don’t plan on staying in the home long-term
When you take out a loan, part of the payment goes toward the principal, and part of it goes toward the interest. The payments are not equally divided between the principal and the interest.
For example, if you have a 30-year mortgage, most of the first few years of payments will go toward the interest and not the principal.
In that case, if you don’t plan on staying in the house for 30 years, you may earn more by putting your money in the stock market than by paying extra on your mortgage.
You’re behind on retirement savings
If your retirement portfolio isn’t where it needs to be, investing more money in your 401(k) or individual retirement account (IRA) makes more sense than putting it toward your house.
From 1928 to 2022, the average annual return of the S&P 500 — the 500 largest publicly traded companies in the U.S. — was 9.82%.
Talk to a financial planner to figure out how much you should be saving for retirement and when you can afford to focus on debt payoff.
Resolve $10,000 or more of your debt
Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest.
National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.1
How to get National Debt Relief to help you resolve your debt: Sign up for a free debt assessment here. (Do not skip this step!) By signing up for a free assessment, National Debt Relief can assist you in settling your debt, but only if you schedule the assessment.
You don’t have an emergency fund
An emergency fund is the cornerstone of a solid financial plan and can help you deal with life’s surprises, like a job layoff, a trip to the emergency room, or taking unpaid leave to care for a loved one.
Most people need between three to six months of expenses in an emergency fund, so you should not pay extra toward your mortgage if your emergency fund is below that target.
You can take a tax deduction
When you have a mortgage, you can deduct the interest paid on your taxes. This only applies to homeowners who itemize their deductions. If you take the standard deduction, you can’t deduct your mortgage interest.
If you’re one of the lucky few who itemize their deductions, then keeping your mortgage and taking the deduction might be better for your tax situation than paying it off early.
Trending Stories
Your interest rate is below the inflation rate
During times of high inflation, many homeowners have a mortgage rate lower than inflation.
In this case, your best bet is to invest instead of focusing on your mortgage. Investing while inflation is high means your money will go farther than if you paid off your home.
You have other financial goals
For most consumers, paying off a mortgage ahead of time isn’t their biggest financial priority.
If you have kids in college, need to replace your old car, or have an aging parent to take care of, it’s OK to prioritize those goals instead of your mortgage.
You want to keep your money liquid
When you put more money toward your mortgage, those funds are tied up until you sell the house or take out a home equity loan.
If you don’t plan on moving soon or want your money to be easily accessible, consider keeping it in the bank instead of sending it to your lender.
You’re worried about hurting your credit
For some borrowers, a mortgage may be their only type of installment credit, which refers to a type of loan with a fixed payoff time frame.
If you pay off your mortgage, your credit score may take a slight hit. In this case, keeping your mortgage could help your credit score.
You can also improve your credit score by making payments on time every month.
Earn cash back on everyday purchases with this rare account
Want to earn cash back on your everyday purchases without using a credit card? With the Discover®️ Cashback Debit Checking account (member FDIC), you can earn 1% cash back on up to $3,000 in debit card purchases each month!2
With no credit check to apply and no monthly fees to worry about, you can earn nearly passive income on purchases you’re making anyway — up to an extra $360 a year!
This rare checking account has other great perks too, like access to your paycheck up to 2 days early with Early Pay, no minimum deposit or monthly balance requirements, over 60K fee-free ATMs, and the ability to add cash to your account at Walmart stores nationwide.
Don’t leave money on the table — it only takes minutes to apply and it won’t impact your credit score.
You can easily afford the monthly payments
If your mortgage payments fit into your budget, then there might not be a reason to pay off your home loan early.
Some homeowners are comfortable having their mortgage as a line item in their budget, in which case there’s no reason to get rid of it early.
You have a prepayment penalty
While prepayment penalties for mortgages are rare, it’s important to understand if you have one. If you do, you may be charged a fee if you pay off the mortgage ahead of schedule.
Contact your lender and determine if you have a prepayment penalty and whether the penalty expires after a certain time. If it does, you can avoid throwing away money and pay off the mortgage after that date.
Bottom line
Paying off your mortgage as early as possible might seem like a responsible move — and for the most part, it is. But depending on your financial situation, it can be a less-than-optimal way to boost your bank account.
If you’re still not sure what to do, consider meeting with a financial planner who can review your situation and provide specific advice.
Lucrative, Flat-Rate Cash Rewards
FinanceBuzz writers and editors score cards based on a number of objective features as well as our expert editorial assessment. Our partners do not influence how we rate products.
Wells Fargo Active Cash® Card
Current Offer
$200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual Fee
$0
Rewards Rate
Earn unlimited 2% cash rewards on purchases
Benefits
- Low spend threshold for its welcome offer — $200 cash rewards bonus after spending $500 in purchases in the first 3 months
- Cell phone protection benefit (subject to a $25 deductible)
- Can redeem rewards at an ATM for literal cash
Drawbacks
- Foreign transaction fee of 3%
- No bonus categories
- Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 19.74%, 24.74%, or 29.74% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
- $0 annual fee.
- No categories to track or remember and cash rewards don’t expire as long as your account remains open.
- Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
Subscribe Today
Want extra-cash moves to come right to you?
Stop browsing endlessly. Get proven ways to earn pocket money, help cover rent, and crush your debt — sent to your inbox daily.
Author Details