Does it Make Sense to Pay Off Your Mortgage Early?

By Brock Alvord

Owning a home is still the “American dream,” but that dream has changed over time. Purchasing a home is one the largest expenses you will likely ever have, so it’s important to properly prepare for this major life achievement. Buying a home in today’s crazy market certainly is not what it used to be. The housing market has seen unprecedented growth in the past year. While the number of homes for sale continues to grow in 2022, actual home sales are slowing, with a projected decline of 6.7% from 2021’s record high since 2007.[1]

What does this mean for you if you are already a proud homeowner? Since most of us don’t have the luxury of paying for a house in cash, we will have to incur some debt for the next 15-30 years in order to eventually own this major asset outright. While avoiding debt of any kind is a wise choice, a mortgage is one of the exceptions. So how do we then minimize this debt as much as possible, and what is the best way to manage it? Is it better to put every extra dollar toward your mortgage or invest that money instead? As with most financial decisions, the answer depends on your unique situation, but consider the following to help you determine if it makes sense for you to pay off your mortgage early.

Current State of the Housing Market

In recent years we have seen unprecedented gains in the housing market. Home prices rose 18.8% in 2021, according to the S&P CoreLogic Case-Shiller US National Home Price Index, the biggest increase in 34 years of data and substantially ahead of 2020’s 10.4% gain.[2]

Many people may be hoping for housing prices to significantly drop before buying, but that may or may not happen. However, there are a few key points we can examine that may help provide some clarity. First, there is a large shortage of houses in comparison to buyers. According to Moody’s Analytics, the housing market is short about 1.5 million housing units and the National Association of Realtors (NAR) estimates that the shortage is actually closer to 5.5 million units. The Biden administration has recently proposed the Housing Supply Action Plan (HSAP) in hopes of breaching the housing supply gap in five years.[3]

Second, mortgage rates have also been a major contributor in buyers being priced out of the market. Based on the Freddie Mac’s Primary Mortgage Market Survey, the 30-year mortgage rate was approximately 3.22% in the first week of January of 2022,[4] while rates are now closer to 5.75% in July[5]. The significant jump in rates has been an indirect result of the Federal Reserve trying to slow inflation through a more aggressive monetary policy. Depending on future inflation numbers, we could see the Federal Reserve continue their aggressive approach, or they could begin to pull back which should help mortgage rates to decrease.

While supply of houses and mortgage rates play a large role in your ability to afford a specific price range, your own personal circumstances are the most important element to consider. These factors include a variety of aspects including the needs of your family (size, layout, location, etc.) and the allotted time you have to look for a home. While it is difficult to give a specific recommendation without knowing the circumstances, these are key components that should be closely monitored when considering the purchase of a home.

Identify the Best Use of Your Funds

If you are considering paying off or paying extra toward your mortgage, we can assume you have at least some extra cash each month or a lump sum you’re looking to put to use. Leaving additional funds sitting in a savings or checking account where you’re earning less than a percent of interest may not make financial sense, especially in the current high inflationary environment we are in. You want your money to work for you, so the question to ask is, “What option will give me the biggest payoff?” Many people choose a simple comparison between their mortgage rate and the rate of return on their investment or portfolio.

Like most financial decisions, there are plenty of things that could affect the outcome. As we all know, even the best estimates aren’t guaranteed. It’s important to run a thorough analysis and consider a variety of factors: the current interest-rate environment, potential taxes on new investments, the loss of mortgage interest deduction (if applicable), is it a forever or starter home, your risk tolerance and expected return of your investment portfolio, and private mortgage insurance, among other elements of your financial life. An experienced financial planner can provide needed guidance and direction when it comes to such a decision.

Weigh Your Options

There are pros and cons to each choice that go beyond the raw math. Liquidity is a significant benefit of investing since, depending on which type of account you invest in, you may have greater access to the funds in case of an emergency or for your other financial goals. By placing the money toward your mortgage, thereby increasing the equity in your home, your options become more limited. The only way to access those funds would be to sell your house, do a cash-out refinance, or obtain a home equity loan or line of credit.

The advantages to paying down your mortgage are obvious. The additional cash flow created from the savings once the home is paid off can be redirected to your longer-term goals or strengthen your monthly budget once retired. The savings created could also potentially be used to offset your healthcare or long-term care costs once retired as well. However, paying extra toward your mortgage during your working years means less cash available to invest in securities with a higher expected return—which, if done wisely, could outperform the guaranteed return you get by paying down your mortgage.

The Allure of Debt-Free Living

While avoiding extra mortgage principal payments is oftentimes the right “financial answer,” there is more to the decision than just the numbers, as paying off your mortgage can have other non-financial benefits as well. Transitioning into retirement debt-free can provide homeowners comfort at a time when they are feeling financially vulnerable. Living solely off one’s investments and/or Social Security can be intimidating and having one fewer monthly bill can help with that transition. So while the numbers don’t lie, they often don’t tell the whole story. Do not underestimate the feeling and mindset of having your mortgage paid off as you enter retirement.

It’s Doesn’t Have to Be All or Nothing

Owning a home is a major financial decision. Once you take the leap and make that purchase, the question then becomes how to best manage that asset. This is a question only you can answer, but working with a trusted financial professional can help you determine what method is best for you and your unique situation. There is no one right answer, but it’s also important to consider your options carefully and how this asset works into your overall financial plan.

We would love to help you look at the big picture, evaluate your options, provide personalized financial planning advice, and even show you alternative investment strategies you possibly hadn’t considered. At Coign Capital Advisors, our ultimate goal is to attain suitable portfolio performance while also delivering customized solutions that enhance our method and help make your financial goals more achievable. To get started, send us an email at or call 801-676-4570.

About Coign Capital Advisors

Coign Capital Advisors is a fee-based investment advisory firm based in Draper, Utah. Specializing in serving retirees, business owners, and entrepreneurs, the firm provides holistic wealth management that goes far beyond investment consulting and strives to attain suitable performance combined with solutions that make clients’ financial goals achievable. Led by J. Matthew Zundel, Robert P. Welch, M. Brandon Riley CFP®, Adam G. Lefler, R. Zeb Lowe CFP®, Daniel R. Zundel and Courtland Adams, clients receive a high level of service from a team with more than 90 years of combined experience. To learn more, visit






Coign Capital Advisors is a fee-based financial advisor & fiduciary. We provide financial planning & wealth management services in Utah, USA, investors, legacy, asset management, capital, markets, estate, retirement, finance

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