Should You Repay Your Mortgage Early? 8 Points to Consider.

On Nov 6, 2021

In an era of record-low mortgage rates, paying off your home loan early might seem pointless. But it can make sense for many people, particularly those in or close to retirement.

Don’t forget: Even though rates have dropped for mortgages, falling to near 3% on a 30-year fixed-rate loan, they also have plunged for safe fixed-rate investments.

If you pay off a mortgage with a 3% rate, it’s like putting your money in a safe investment yielding that rate. Finding a 3% safe investment in today’s low-rate world—the 10-year Treasury note yielded 1.45% Friday afternoon—can be tough.

“Even if you have a mortgage with a 2% or 2.5% rate, and you can’t get that elsewhere, it’s worth thinking about” paying it off early, says Natalie Pine, a financial planner in College Station, Texas. “With mortgage rates as low as they are, it’s an arbitrage.”

One of Pine’s clients, 38-year-old Lacey Baze and her husband, Justin, last year paid off a mortgage with a rate close to 4% on their five-bedroom, 3,600-square-foot house in College Station. “Our motivation was we didn’t want to be paying interest any more,” Baze said. She said the couple was unable to find any guaranteed investment that would match the rate on their mortgage.

Some advisors tell their clients to invest their money in the stock market instead of paying off their mortgage. Over the long run, stocks should outearn what they are paying in mortgage interest, they note. But it’s not for sure, whereas paying off your mortgage is a guaranteed return.

There is no right answer. Paying off your mortgage is a personal decision that depends on your financial situation, risk tolerance, and perhaps most of all your attitude toward debt. Here are eight factors to consider.

Four Reasons to Keep a Mortgage

You have other debt to pay off. If you are going to have debt, mortgage debt is the best type there is. You’re borrowing to own an asset that tends to rise in value over time, rather than depreciate like a car or clothes or household items. Mortgage rates are lower than for most other consumer debt. And if you itemize your taxes, you’ll probably be able to write off part of your mortgage payments, though less so than before the tax law change in 2017.

For these reasons, you should pay off all other debt before you think about paying off or paying down your mortgage.

“There’s good debt and not such good debt,” says 84-year-old financial planner Cicily Maton of Chicago, who just paid off her own mortgage a year ago. “Credit-card debt is not good. If you’re not paying it off every month, you’ve got to figure out a way to do that.”

It will leave you without any cash. It’s important to have liquidity to handle the emergencies that arise in life: a new roof, a health crisis, a child that needs help. If paying off your mortgage quickly will leave you without any cash, you may be better off doing so over a period of years.

“You’re giving yourself more flexibility…