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Trinity Owen and her husband bought their four-bed, three-bath home in East Concord, New York, in 2019, and they quickly began sending extra money toward their mortgage to pay it off early. Then the couple did some simple math.
They compared what their extra payments on the mortgage would save them in interest, versus what that same amount invested in the stock market could grow to in 25 years at the average annual market return rate.
“The difference shocked us,” says Owen, who is a digital marketer. “We no longer pay a dime more on our mortgage, even though we could pay it off from our investments more than twice over.”
The Owens discovered something that financial planners already know: Sometimes it doesn’t pay to pay off a mortgage early.
The surprising advice: Keep the debt
“It usually doesn’t make a lot of sense to pay off, say, a 3% mortgage early,” says Tyson Sprick, a certified financial planner with Caliber Wealth Management in Overland Park, Kansas. You could put that cash in a money market account right now, he says, and earn more than that.
The perks of keeping a mortgage
Carrying a mortgage has other advantages.
For one thing, keeping cash available gives you more flexibility. Melissa Caro, a CFP based in New York City and founder of digital platform My Retirement Network, reminds clients that if they pay off their mortgage, all that money is tied up in the house.
“Once you give that money away to the bank, it’s theirs, you can’t have it back,” Caro says. If you need funds for a major repair or emergency, she says, you may end up borrowing again or selling investments that could trigger taxes.
Another plus: Your mortgage interest may be deductible if you itemize on your taxes. “The higher your income is, the more valuable that deduction is, and it does make a huge difference in some cases,” Sprick says.
When paying it off makes sense
That said, holding onto home debt isn’t always the optimal plan. If you’ve got a high-interest mortgage and enough cash to pay it off early, your financial planner might give you the green light. It might also be advisable to work on the debt if you’re nearing retirement — a life stage when owning your home outright can be especially useful.
The question, Sprick says, is whether people have enough cash to pay off their mortgage and pursue other goals at the same time. Are you able to attack your home loan while also putting money away for college and keeping your emergency fund intact?
If you can zero out the mortgage, Sprick says, but it leaves you with nothing left in your bank account, it’s better to wait. “You have to leave yourself some liquidity,” he says.
The emotion of debt
The wild card in all this math is that financial decisions aren’t 100% rational. Money is tied to emotion and feelings of control, and some people just want their debt gone.
“Many people find the idea of living with no debt empowering,” says Josh Brooks, a CFP with Exponential Advisors in Weatherford, Texas. “It’s about financial freedom and peace of mind, more than the numbers alone.”
Still, putting feelings over math might mean you earn less over time, have less liquid cash and make less progress toward other financial goals.
“There are some people who say, ‘I don’t really care, I just want it gone. I just want that feeling of not owing anybody anything,’” Sprick says. From a financial standpoint, it may not be the ideal move, “but life is more than just a spreadsheet.”
The bottom line
In the end, everyone’s situation is different, and you have to make the best decisions for your own finances. If you’re unsure of the best approach, talk to a financial professional.
The good news is that you don’t have to be stressed if you’re paying off a low-interest mortgage for the next few decades — it might be the kind of smart money move financial planners often suggest.
For Owen and her husband, keeping their home loan has allowed them to invest in scaling her online jewelry business, and also to invest in stocks and local real estate.
“Our future would look very different if we had unwisely paid off our mortgage instead of using that money in what we believe are better ways,” she says. “This mindset has greatly changed our perspective on paying interest for necessary purchases.”
