Paying off your house is generally good for financial freedom, saving on interest, and peace of mind, but whether it's the best move depends on your interest rate, emergency fund, and investment goals, as the money could potentially grow faster if invested, especially with a low mortgage rate. It's ideal when your mortgage rate is high (e.g., 7%+), your retirement is secure, and you want to eliminate a major monthly expense for security, but less ideal if you have high-interest debt or can earn significantly more investing.
It might make sense, for example, to pay off your mortgage early if you struggle with keeping money in the bank. Your home can be a forced-savings tool, and making extra payments can save you thousands of dollars in mortgage interest over time, plus you'll build equity in your home more quickly.
Both options can help you build a stronger financial future. Paying off your mortgage early can save you thousands in interest. Investing could grow your wealth over time. The right choice depends on your goals, risk comfort, and where you are in your financial journey.
"Shark Tank" investor Kevin O'Leary has said the ideal age to be debt-free is 45, especially if you want to retire by age 60. Being debt-free — including paying off your mortgage — by your mid-40s puts you on the early path toward success, O'Leary argued.
If your mortgage rate is higher or similar to the savings rate you're looking at, overpaying your mortgage is likely to make greater financial sense. If the savings rate is higher than your mortgage rate, it might be better to prioritise saving for the future.
Tax considerations: You may be able to deduct home mortgage interest from your taxes. 2 However, if you pay off your mortgage, you won't be able to utilize this deduction, which could increase your taxable income. To learn more about the tax implications consider speaking with a tax advisor.
The $1,000 a month rule is a retirement guideline suggesting you need about $240,000 saved for every $1,000 per month in desired income, based on a 5% annual withdrawal rate (5% of $240k is $12k/year, or $1k/month). It's a simple way to set savings goals, but it doesn't account for inflation, taxes, or other income like Social Security, so it's best used as a starting point, not a complete plan.
Do property taxes go up when you pay off your mortgage? No. Your property tax amount largely depends on the assessed value of your home, not your mortgage balance or the presence of a mortgage.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
Cons of paying your mortgage off early. It can keep you from saving or paying off other debt—Draining your bank accounts to pay off a mortgage can be very risky. Most experts recommend prioritizing a few other things before you tackle paying off a mortgage.
Insurance, taxes, and escrow account matters
“Once your mortgage loan is done, escrow accounts usually close. That means you'll need to budget separately for property taxes and insurance moving forward. Be sure to meet the payment deadlines,” advises Ryan Zomorodi, co-founder of Real Estate Skills.
In fact, according to Public Policy Institute of California, 58 percent of California's equity millionaires, as of 2020, had successfully paid off their mortgages.
When your mortgage is paid off, first handle administrative tasks like canceling autopay and getting your lien released, then set up a system for paying property taxes/insurance directly (maybe a new "escrow" account); next, re-evaluate your budget and redirect that freed-up money towards other financial goals like building an emergency fund, paying off other debts, or investing for retirement, while keeping homeowners insurance and considering home improvements.
If you pay off your only active installment loan, it is considered a closed credit account. Having no active installment loans, or having only active installment loans with relatively little amounts paid off on those loans can result in a score drop.
Peace of mind, saving on interest and building equity are three benefits of paying off your mortgage. Downsides include opportunity cost, reduced liquidity and removing a major tax deduction. A financial professional can advise you on the most appropriate options for your financial situation.
The average age to pay off a mortgage in the U.S. is around 62, with many becoming mortgage-free in their early 60s, coinciding with or just after typical retirement age, though figures vary by source. While some financial experts suggest paying it off by 45 for aggressive investing, data shows a significant portion of homeowners, especially older ones (60+), are mortgage-free, but increasingly, older adults (60s, 70s, 80s) carry more mortgage debt than previous generations, according to Marketplace.