Is Paying Off Your Mortgage Early a Good Idea?

illustration of couple celebrating outside their home

One thing that most financial advisors and talking heads agree on is that paying off your mortgage is a good idea for soon-to-be retirees. The idea is simple; in order to help your fixed or passive income and social security stretch further, paying off your mortgage helps significantly. While no-mortgage-living is currently dominated by Baby Boomers, there are a growing number of Millennials and Gen X homeowners that are dabbling with the idea of paying off their mortgage early too. I’m one of them. 

Before diving into the facts and process of actually achieving a mortgage free life, I wanted to cover how I actually got to this decision. 

  1. I’m a business owner, and my next year of business is not guaranteed
  2. I traded in a sub 3% mortgage for a 5.25% mortgage a couple of years ago
  3. Once the house is paid off, that frees up a lot of cash to enjoy more of the stuff we love doing
  4. I don’t want my family to worry about needing to sell the house should I pass away (even though we have life insurance)
  5. I hate the feeling of debt, even though a mortgage isn’t necessarily bad debt
  6. We want to live in this home for a very, very, very long time
  7. I want the freedom to retire or adjust work hours on my own terms

If any of that resonates with you, then I think you will enjoy the rest of this post.

Who Is Mortgage Free in the United States?

Interestingly, it’s the Baby Boomers who dominate the ranks of mortgage-free homeowners in the United States. This achievement is often referred to as owning a home “free and clear,” where the only significant financial burdens that remain are property taxes and insurance. While it’s a liberating feeling to no longer have mortgage payments, it’s important to note that you can’t pay off those remaining expenses early, unlike a traditional mortgage.This phenomenon of mortgage-free living is particularly noteworthy among Boomers, as it’s often the culmination of decades-long efforts to pay off their homes. For many, it’s a significant milestone in their financial journey, symbolizing a sense of security and accomplishment. Without the weight of mortgage payments, these homeowners can redirect their financial resources towards other goals, such as retirement, travel, or simply enjoying their golden years.

Many of the Boomers that achieved free and clear homeownership over the last few years did so by refinancing their mortgages when rates hit historic lows in 2021 and 2022. This lowered their payments, allowing them to pay down their homes faster.

Let’s just assume that mortgage rates will never drop below 3% in our lifetimes again. With that assumption, we’ll figure out why and how you might want to pay off your home early. 

Why You Might Want to Pay Off Your Mortgage Early

​Well, you know why I wanted to pay off my mortgage early. Some of it might have clicked with you too. Let’s break these reasons for owning a home free and clear a bit more.

Paying Off Your Mortgage Because of Risk

Look, as a Millennial, I’m fairly tired of hearing “once in a lifetime” events continue to be broadcast across the news. I’ve watched the dot com bust in the late 90s, 9/11 terror attacks, the Great Financial Crisis (GFC) in 2008, tariff wars in 2018, Covid in 2020-2021, and the highest inflation in decades. Many of us can look back on those events and say, “well, I’m better off today than I was back then.” Unfortunately, some cannot make that statement. 

​Paying off my mortgage early means that I can take some risk off of the table. 

Psychological Impact of Being Debt Free

Many homeowners have reported a major amount of mental relief associated with paying down the mortgage early. This ties well into de-risking your life. The median monthly cost of homeownership in the US was $1,775 in 2022. That amount has most likely gone up as property taxes, homeowners insurance, and interest rates have jumped over the last 2 years. 

The $1,775/month number includes insurance, property taxes, utilities, and HOA fees. 

Rocket Mortgage has pulled data from a similar period reported by the National Association of REALTORS®. They reported that the monthly mortgage payment, excluding extra expenses, was closer to $2,317 per month. Because I want to be conservative with my numbers, we’ll take that into consideration over the Census data. 

​Once a homeowner pays off their mortgage, that means they are no longer shelling out $2,317 per month (or $27,804 per year) to service their mortgage. Imagine life without watching $2,317 per month go out the door. 

​Marriage Kids and Money YouTuber explains the psychological impact further. 

Your Interest Rate Is Above Inflation

Paying Off Your Mortgage: Breaking Free from Inflation’s Grip Inflation has skyrocketed in recent years, leaving many of us reeling. Gone are the days of sub 3% interest rates, replaced by a whopping 5.25% rate for us. For homeowners, this new reality can be overwhelming, especially when you factor in the 3.3% current inflation rate.

If you’re like many people, you’re wondering how to make your money grow in this economy. One effective strategy is to pay off your mortgage early, allowing you to gain control over your finances and mitigate the risks associated with inflation. Let’s face it: traditional investments like bonds, high-yield savings accounts, and stocks are not what they used to be. Bond yields are dwindling, high-yield savings accounts are slowly decreasing their rates, and stocks are far from a sure bet. 

The uncertainty of the market can be daunting, leaving many wondering what the future holds. This is why paying off your mortgage early might help if you’re struggling with the risk/reward of your current housing costs.

Retirement and Work on Your Terms

Most homeowners report their mortgage as their largest source of debt and monthly expense. Freeing up money from this expense is essential for retirement. It can also free up your work life, whether you want to switch careers, work a little less, or even go back to school. Eliminating this expense can open up a world of opportunities. 

How to Pay Off Your Mortgage Early

The most important part of achieving your free and clear homeownership dream is to create a plan. If you’re married or have a long term partner that also owns the house, having a family meeting about your financial goals is key to success. Everyone needs to be on the same page. Paying off your mortgage early requires some discipline, and all parties involved need to be on the same page. 

First, you want to create a plan. When do you want to be done with your mortgage? How much extra cash can you dedicate to paying it down? What are you willing to delay in order to achieve this goal? What are you not willing to sacrifice?

Next, you want to decide how you will achieve this plan.

Lump Sum Payments

One way to pay down your mortgage is to make a lump sum payment. Most mortgage services will allow you to do this quarterly, annually, or whenever you feel like you have extra cash. This can be based on bonus schedules, or commissions earned. It’s important that you stick to your plan.

The Power of Bi-Weekly Mortgage Payments

Did you know that making small adjustments to your mortgage payment schedule can have a significant impact on your financial burden? One strategy that’s both simple and effective is splitting your regular monthly mortgage payment into two payments each month. This clever trick can help you chip away at the interest accrued each month, without feeling like you’re making a significant financial sacrifice.

The Math Behind It

By dividing your monthly payment in half and paying it every two weeks, you’ll end up making 26 payments per year, rather than the traditional 12 monthly payments. This means you’ll make an extra payment each year, without having to pay a lump sum upfront. This strategy can lead to significant interest savings over the life of your loan.

Implementation Made Easy

The best part? Implementing this strategy is relatively effortless. You can typically make the necessary adjustments online through your lender’s platform or with a quick phone call to your lender. This convenience means you can start enjoying the benefits of bi-weekly payments without significant effort or hassle.

The Long-Term Benefits

By adopting this bi-weekly payment strategy, you’ll be amazed at how quickly you can make progress on your mortgage. You’ll not only save on interest payments but also build equity in your home faster. As the months go by, you’ll find yourself enjoying the peace of mind that comes with knowing you’re tackling your mortgage with confidence.

Tackling Your Mortgage with Extra Principal Payments

If you’re eager to shave off years from your mortgage and save thousands of dollars in interest, making extra payments to your mortgage principal is an excellent strategy. This approach not only yields satisfying results but also offers several advantages that can make it a game-changer for your financial journey.

Why Extra Principal Payments Reign Supreme

When you make extra payments directly to your mortgage principal, you’re attacking the heart of your mortgage: the outstanding balance. This tactic is incredibly effective because it reduces the principal amount, which in turn decreases the interest accrued over time. By doing so, you’ll save a significant amount of money in interest payments and slice years off your mortgage term.

Budget-Friendly and Easy to Manage

One of the most attractive aspects of making extra principal payments is that it can be more budget-friendly than making a single lump sum payment. By breaking it down into smaller, manageable chunks, you can easily incorporate extra payments into your regular budget. This approach also allows you to stick to your plan more easily, as you’ll be making consistent progress toward your goal.

Convenience at Your Fingertips

The best part? Managing your extra principal payments is typically a breeze, thanks to the online dashboards provided by your lender. With just a few clicks, you can make an extra payment, review your mortgage details, and track your progress. This level of convenience ensures that you can stay on top of your mortgage payments and make adjustments as needed.

Check out this easy to use Amortization Calculator:

The Ripple Effect of Extra Principal Payments

By committing to regular extra principal payments, you’ll start to notice a ripple effect in your financial life. You’ll enjoy the satisfaction of watching your mortgage balance decrease, your interest savings add up, and your overall financial freedom increase. As you continue to chip away at your mortgage principal, you’ll be building momentum toward a debt-free future.

Taking Control of Your Mortgage

As you’ve seen, there are many ways to tackle your mortgage and achieve financial freedom. From splitting your payments to making extra principal payments, every strategy has its advantages. The key is to find what works best for you and your unique financial situation.

By incorporating one or more of these tactics into your mortgage repayment plan, you’ll be amazed at how quickly you can make progress and save thousands of dollars in interest. You’ll also enjoy the peace of mind that comes with knowing you’re in control of your mortgage, rather than the other way around.

Remember, paying off your mortgage is a journey, and every small step counts. Whether you’re just starting out or nearing the finish line, stay committed to your goals and celebrate your progress along the way. You got this!



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