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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free 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.
-
The Most Popular Apps for Retirement Planning in 2025A J.D. Power survey ranks retirement planning apps based on customer service and satisfaction. Does your financial app make the cut?
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary FormsStandard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary Forms
Standard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
This Is How Life Insurance Can Fund Your Dreams NowBeyond a death benefit, life insurance can provide significant financial value and flexibility through 'living benefits' while you are still alive, helping with expenses like education, business ventures or retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on RetirementWhile some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
-
One Small Step for Your Money, One Giant Leap for RetirementSaving enough for retirement can sound as daunting as walking on the moon. But what would your future look like if you took one small step toward it this year?
-
This Is What You Really Need to Know About Medicare, From a Financial ExpertHealth care costs are a significant retirement expense, and Medicare offers essential but complex coverage that requires careful planning. Here's how to navigate Medicare's various parts, enrollment periods and income-based costs.
-
I'm a Financial Planner: Could Partial Retirement Be the Right Move for You?Many Americans close to retirement are questioning whether they should take the full leap into retirement or continue to work part-time.
-
From Mortgages to Taxes to Estates: How to Prepare for Falling Interest RatesAs speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.
-
This Is How Lottery Winners Build Lasting Legacies, From a Financial ProfessionalWinning a massive lottery jackpot, like the recent $1.4 billion Powerball, requires seeking immediate legal and financial counsel, protecting your identity and winnings and planning your legacy.
