Making Extra Mortgage Payments?
While paying off your home's mortgage may give you a great feeling of liberation and peace of mind, there are a couple of issues to consider.
- (opens in new tab)
- (opens in new tab)
- (opens in new tab)
- Newsletter sign up Newsletter

Editor’s note: This column has been updated from an earlier version.
You recently bought a home. Congratulations. Your new mortgage company just sent you a payment statement, which includes the teaser: “You can save a lot of money by paying extra each month.”
Well, maybe, but that’s only one part of the picture. Many investment advisers, myself included, might argue that if you invested the extra money you were pumping into your mortgage, you could come out ahead.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
With mortgage interest rates as low as they’ve been, it’s likely that your investments could out-earn the interest you’d be paying.
In addition, there’s inflation to consider. Unless you have an adjustable rate mortgage (ARM), mortgage payments are fixed, meaning they remain constant. Thus, when adjusted for inflation, they become progressively smaller over time. Unfortunately, the message of “pay extra and save” fails to consider the Time Value of Money.
Is it ever OK to pay off a mortgage early?
Yes! There are some valid reasons why someone might want to pay off their mortgage early.
- Income issues. If you expect your retirement income will be less than your earning years, then timing the completion of house payments for retirement may make sense.
- Peace of mind. There are people who simply do not like having a house payment loom over their heads. This would be particularly true for someone in an uncertain job situation. Having no mortgage payment protects the home from foreclosure if employment is suddenly terminated and prospects of finding a new job are low.
- Medical issues. A person who has a developing or worsening chronic illness may find getting out from under a mortgage before the disease worsens to a point of being very expensive is a big financial advantage and in line with good planning.
- You have an adjustable rate mortgage (ARM). Less common now than a decade ago, these lending devices are structured to provide a low monthly payment in the initial years and rises later when (presumably) you earn more and can afford more – at least that’s the “official” theory. However, it was ARMs that contributed to the mortgage default bubble in 2007. If you have one, paying it off sooner than later is a good idea, as interest rates are on the rise these days.
Are There Other Ways to Reduce a Mortgage Payment?
Yes. Rather than paying your mortgage off early, you may want to consider refinancing, although as interest rates rise, the value of this option may be vanishing.
The decision to pay off a mortgage ahead of schedule is something to discuss with an independent financial planner. While there are times when paying off a mortgage early can make sense don’t buy into the canned line “you’ll save so much,” because in some ways, it simply may not be true.
Michael Tove, Ph.D., CEP, RFC, is a Certified Estate Planner and Registered Financial Consultant and founder of AIN Services (opens in new tab), an independent multifaceted financial, estate and retirement planning agency located in Cary, North Carolina.
-
-
Stock Market Today: Stocks End Lower Ahead of Powell Speech
Investors continued to grapple with Friday's strong jobs report and how it might impact the Fed's decision-making.
By Karee Venema • Published
-
Legalized Weed Sales Begin in Missouri: This Week in Cannabis Investing
The Show Me State legalized recreational weed in 2022, with sales officially underway as of last Friday.
By Morgan Paxhia • Published
-
Four Steps to Financial Wellness for Black History Month
The small financial steps you take today, such as showing yourself empathy and building credit and savings, can add up to help you create a better tomorrow.
By Aaron Harding, CFP® • Published
-
The Impact of Social Security on Divorced Retirement Income
Social Security spousal benefits can quickly get complicated when remarriages and other circumstances are taken into account. Let’s explore some examples.
By Chris Chen, CFP® • Published
-
Are You a Money Moron? Where’s Our Financial Common Sense?
Not to be harsh, but shouldn’t we all have seen this economic angst coming? Let’s get frank about Money Moron Syndrome and how to avoid falling victim to it.
By Neale Godfrey, Financial Literacy Expert • Published
-
Personal Finance Tips for the Year of the Rabbit
Being intelligent like a rabbit by making smart choices about spending and saving, paying attention to details and exercising patience in investing can help increase financial security.
By Marguerita M. Cheng, CFP® • Published
-
Which Charitable Giving Archetype Are You?
Understanding the charitable giving archetype that resonates with you can make it easier to align your giving with the difference you most want to make.
By Catherine Crystal Foster • Published
-
Different Approach to Financial Planning Addresses ‘the Missing Middle’
Nontraditional financial planning model allows you to pay for the expenses you incur between now and retirement — the middle of your life — without losing the ability to build wealth.
By Brian Skrobonja, Chartered Financial Consultant (ChFC®) • Published
-
Thinking of Starting a Business? Tips for Avoiding Failure
Two experts offer some advice on what not to do if you want to succeed (rather than sink) as a small-business owner.
By H. Dennis Beaver, Esq. • Published
-
A Retirement Income Distribution Plan Is as Critical as Saving
Designing a strategy to efficiently use your retirement savings is a critical step on your retirement planning journey to maximize your income and ensure a long-lasting retirement.
By Bradley Rosen • Published