Should You Pay Off Your Mortgage Early? Not If You’re Building Wealth

Why Paying Off Your Mortgage Early Isn’t Always a Good Idea

While the idea of living mortgage-free is appealing, there are several reasons why it might not make the most sense for wealth builders. Consider these factors before rushing to pay off your home loan:

1. Opportunity Cost of Tied-Up Equity

When you pay off your mortgage, you’re essentially locking your money into an illiquid asset. Instead of putting tens or hundreds of thousands into a home, you could invest that money elsewhere, potentially earning a higher return. For instance, the long-term average annual return for the S&P 500 is around 10%, while the typical mortgage rate in 2025 is closer to 6-7%. That gap can make a big difference over decades.

Consider this: If you have $100,000 in equity, investing it in the stock market at 10% annual returns could grow to over $260,000 in just 10 years. By contrast, paying off a 6% mortgage would save you $60,000 in interest over the same period – a significant difference in wealth potential.

2. Tax Benefits

Mortgage interest is often tax-deductible, which can reduce your taxable income if you itemize your deductions. This effectively lowers your mortgage’s net interest rate, making it even cheaper than it first appears.

For example, if you’re in the 24% tax bracket and pay $10,000 in mortgage interest, you could reduce your taxable income by $2,400, effectively cutting your mortgage rate by nearly a quarter.

3. Inflation Hedge

A mortgage can act as an excellent hedge against inflation. With a fixed-rate mortgage, your monthly payment stays the same even as the value of the dollar decreases over time. This means your debt effectively gets cheaper, while your home’s value likely appreciates.

4. Liquidity and Flexibility

Paying off your mortgage early ties up cash that might be better kept in more liquid, flexible investments. If an emergency arises or a unique investment opportunity presents itself, having your money locked in your home can be a disadvantage.

5. Building Credit and Leverage

Keeping a mortgage can positively impact your credit profile, demonstrating a strong history of on-time payments. It also preserves your ability to leverage that equity for future investments, such as using a cash-out refinance or home equity line of credit (HELOC) to finance other opportunities.

When It Makes Sense to Pay Off Your Mortgage Early

While holding onto a mortgage can be smart for wealth builders, there are situations where paying it off early might still be the right move:

• You’re nearing retirement and want to reduce your monthly expenses.
• You’re uncomfortable with debt and prioritize peace of mind over financial leverage.
• You have a high-interest mortgage or adjustable-rate loan that costs significantly more than your potential investment returns.

Read Next

• Conventional 30 Year Fixed
• Debt Consolidation HELOC
• Cash-Out Refinance

FAQs

Take the Next Step

Ready to explore your options? Use our Loan Comparison Calculator to see what type of mortgage might be right for your financial goals, or check out our Mortgage Affordability Calculator to assess your buying power today.

Final Thoughts

Ultimately, whether or not to pay off your mortgage early depends on your financial goals, risk tolerance, and overall investment strategy. While the idea of being mortgage-free is enticing, for many wealth builders, keeping that mortgage might actually be the smarter financial move.