Should We Pay Down Our Mortgage, or Invest the Money Instead? It’s a question we help clients evaluate often, and there’s no one-size-fits-all answer. The best choice depends on your mortgage rate, liquidity needs, time horizon, and investment philosophy. Although we’re not real estate professionals, we have helped clients think through this decision and developed a framework to guide the conversation. Our goal is to help you make a choice that aligns with your long-term goals and financial priorities. Why Some Choose to Pay Off Their Mortgage For many, it’s not just a financial decision; it’s emotional. Reducing or eliminating mortgage debt often brings comfort to individuals, particularly for those approaching retirement. Interest Savings On a $320,000 loan at 6.6 percent over 30 years, you’d pay $415,734 in interest. Refinancing to a 15-year at 5.9 percent raises your monthly payment but saves $252,779 in interest over the life of the loan. Even partial prepayments, if applied to principal, can cut interest and shorten the loan.1,2 Is Investing the Better Move? There are pros and cons to each decision, and both need to be evaluated by considering such factors as liquidity and time horizons. Here are a couple of stats to consider:
Compound Growth Potential |
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Other Factors to Consider
How Mortgage Payoff Affects Taxes Mortgage interest may be deductible up to $750,000 of debt (if you itemize).5 Starting in 2025, the SALT cap increases from $10,000 to $40,000 through 2029, potentially increasing the value of itemized deductions for high-income households.6 However, once the mortgage is paid off, you lose that interest deduction, which could raise taxable income. We can provide you with additional information on the new tax laws, but we would encourage you to speak with your tax professional before making any changes. Are Today’s Rates Really That High? Mortgage rates may feel elevated today, but from a historical perspective, they remain relatively normal. Since Freddie Mac began tracking rates in April 1971 through July 2025, the median 30-year mortgage rate is 7.71 percent.7 Because the average rate over the past decade was closer to 4 percent.8, rates above 6.5 percent may feel high, but it’s worth remembering that they are still below historical averages. |
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Where Does Your Mortgage Rate Fall? The single factor driving many people to consider paying off their mortgages, or at least refinancing, is the rate they are currently paying. Since mortgage rates fluctuate constantly, your number is based on the rate environment at the time you purchased your house. As you can see below, while most homeowners have mortgage rates of 4 percent or less, a number are still paying more.9 Where do you fall? |
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Many people with mortgage rates under 4 percent are unwilling to consider moving due to their interest rate. In that situation, those homeowners would need to evaluate the “opportunity cost” of paying down a mortgage vs. other uses for the money. A Final Thought There’s no one-size-fits-all answer to whether to pay off your mortgage early or invest. The right choice depends on various factors: your mortgage rate, tax situation, investment outlook, time horizon, and overall comfort with risk. Both strategies can support your financial goals, but they should be considered within the context of your broader financial strategy. If you’re weighing your options or want a second opinion, we’re happy to help weigh the pros and cons and determine the approach that works best for you and your family. |
1. AARP, May 21, 2025 2. Chase, July 2025 3. NerdWallet, April 10, 2025 4. Wealthy Education, July 2025. Bonds are represented by the Bloomberg US Aggregate Bond Index. If you sell a bond prior to maturity, it may be worth more or less than the original price paid. 5. Bankrate, March 18, 2025 6. The Wall Street Journal, September 10, 2024 7. The Mortgage Reports, July 18, 2025 8. U.S. News & World Report, March 21, 2025 9. Realtor.com, October 2, 2024 10. Bankrate, June 6, 2025 |
Should You Pay Off Your Mortgage Early If You Can?
