Paying off a house is worth it for the peace of mind, reduced monthly expenses (especially near retirement), and significant interest savings, but it might not be optimal if your low mortgage rate could earn more in investments or if you need liquid cash; the best choice depends on your financial goals, risk tolerance, and current interest rates. It's a trade-off between debt-free security and potential investment growth, requiring a look at your mortgage's interest rate versus potential investment returns.
Assuming you have enough savings left over for emergencies and things that you need, it is better to pay off the mortgage especially given the current interest rates. You have no guarantee but you will make that percent back in the market in any given period.
Suze Orman strongly advocates paying off your mortgage by retirement for financial freedom and peace of mind, but her advice on how varies by situation, often prioritizing a solid emergency fund and retirement savings first, especially if interest rates are low. While she pushes for paying down debt aggressively (even reducing retirement savings beyond the 401(k) match), she cautions against draining savings for low-interest mortgages if it leaves you vulnerable to job loss or emergencies, suggesting you should have a strong safety net before using savings to pay it off.
To be fair, Ramsey does not advise paying off your mortgage as a first step. He wants you to pay off all of your other debt first and then start setting aside 15% of your money to stick in mutual funds. Only after you do these things does he tell you to pay off your mortgage.
But here's the truth: the wealthiest clients I work with almost never do. They know something most people don't. Paying off your mortgage early gives you a guaranteed return equal to your interest rate… maybe 4%.
"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.
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.
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.
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.
Once your mortgage is paid off, we'll prepare a lien release, also called the “reconveyance” or “satisfaction of mortgage” document. Once that's ready, all necessary documents will be sent to the applicable county for recording. The processing time for this varies by county.
Switching to biweekly payments is one of the easiest and most effective ways to pay off your home loan faster. When you pay half your mortgage payment every two weeks results in 26 half-payments, which equals 13 full payments each year instead of 12.
You might not want to pay off your mortgage early if …
Your cash reserves are low: You don't want to end up house rich and cash poor by paying off your home loan at the expense of your reserves. We recommend keeping a cash reserve of three to six months' worth of living expenses in case of emergency.
18% of homeowners under age 44 have paid off their mortgage (link provided)
The following savings guidelines can be a starting point for evaluating your progress toward a fully funded retirement. These rules of thumb say you should have saved ... 2 to 3 times your income by age 40. 3 to 4 times your income by age 45.
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.
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.
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.