Question: Is it Smart to Pay off Your Mortgage Early?
This is a great question! Many people assume that paying off any loan early is a smart decision. However, it may not be the most financially advantageous decision to pay off your mortgage early. Here’s why:
Mortgage Loan Debt = Cheap Debt
Mortgage loan debt is often the cheapest debt you can carry. It is based on simple interest, unlike many credit cards which are based on compounding interest. Additionally, mortgage loans have traditionally had the lowest interest rates compared to almost any other type of loan. So, if you have any other type of debt, it’s probably a more expensive debt to carry. Because mortgage is secured with a valuable asset, your house, it is usually the least expensive debt people can carry. So, if you have other more expensive debt, paying off mortgage loan early may not be the best financial move.
Inflation Reduces Actual Cost of Interest Over Time
Furthermore, inflation actually reduces the true cost (or adjusted value) of your mortgage debt each year. Your debt is actually shrinking, or getting cheaper each year, due to inflation (the devaluing of money). It’s possible that compounding inflation may outpace your mortgage interest rate, causing you to be in a positive financial position. So, before paying off your mortgage debt early, consider the impact of inflation on the long-term value of your money. Use the U.S. Bureau of Labor & Statistics inflation calculator to see real-world examples of how inflation affects the US Dollar over time.
Inflation Example:
Home Purchase in 1996
Mortgage Loan Principal: $150,000
30-year Mortgage Loan @ 7% APR Interest
Total $ Cost of Mortgage Debt (over 30 years): $359,264
Inflation-Adjusted Value of $150,000 in January 2026: $314,819
Difference: $44,445 (true cost of 30-year mortgage debt, adjusted for inflation)
Average Cost of Debt: *$1482/year or $124/month
*This assumes that the mortgage loan is carried for the full 30 years. However, if the mortgage loan is paid off early, the true cost is higher.
Investing at a Higher Rate of Return
Additionally, if you can invest your money at a higher rate of return, it may be smarter to invest. Compare interest saved from an early mortgage payoff to the investing the same amount by using our Investment Growth Calculator. You could be losing money due to opportunity cost. Opportunity cost can come in the form of lost investment potential or other lost business opportunity.
Tax Implications
Another thing to consider is your tax situation. Some people benefit from claiming annual mortgage interest payments as a tax deduction on their tax return. Be sure to consider the cost of any lost tax savings if you decide to pay off your mortgage early.
Availability of Liquid Cash
Having money in your bank account to spend or invest is more useful than having more equity in your home. If you’re not planning to leverage the equity in your home anytime soon, your alternative is having liquid cash. You have the benefit of living in your home whether it’s paid for or not. So, what you do with the equity in your home while you’re living in it is purely a financial decision. The more liquid your assets are, the more opportunity you have to use them for different purposes. You reduce your liquidity if you pay off your mortgage early.
Other Factors to Consider
There are times, however, when it may make sense to pay off your mortgage early. If your only debt is a mortgage loan and are not concerned about the loss of opportunity to pay off more expensive debt, or investment opportunities, or tax savings, then paying off your mortgage early will save you from future interest charges. For some, the psychological benefit of not having a monthly mortgage payment is worth any other lost opportunities.
So, Should You Pay Off Your Mortgage Early?
There’s not one single answer for everyone. There are lot of factors to consider. For many people, it may not be a smart financial decision to pay off a mortgage early. However, this decision really depends on your individual circumstances. The only way to know is to do the math. So, use our mortgage calculators to do the math, and see what your next best financial move is.