Don't Pay Off Your Mortgage Early If Any of These 11 Things Describes You

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.

1. 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.

2. 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.

3. 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.

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4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

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10. 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.

11. 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.

Money tips that can work for everyone

No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.

Focus on paying off your debt . Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.

Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.

Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).