5 Reasons to Not Pay Extra on Your Mortgage

A common philosophy for home ownership is to pay a bit extra on your mortgage to get it paid off quicker. In today’s post, we are going to buck that trend and look at 5 reasons to not pay extra on your mortgage. 

1. You Should put Extra Payments into Retirement Instead

Saving for retirement rather than putting extra money toward your mortgage just makes mathematical sense. We have all heard about the power of compounding. Well, when you consider the extreme growth your money could have in retirement, it would be silly to use the money on your mortgage.

Imagine you put $100 dollars extra a month on your mortgage. For a 30 year mortgage on a $200k house at 6% interest, that would save you 5 years and 5 months of payments or $49,138. If your interest is 4%, the number changes to $26,855. That’s a lot of money! However…

If you put that same $100 into a Roth IRA and got 8% return for 30 years, you would have $135,939! That’s over $90,000 more! 

2. Other Debt is Higher Interest and Should be Attacked First

A second reason to not pay extra on your mortgage is that other debt is more dangerous than your mortgage debt. Most debt will have a higher interest rate than your mortgage including credit card, student loans, medical, and car loans. 

Once again, this comes down to simple math. Even with mortgage rates being exceptionally high in 2023 at 6.8%, many of your other debts will probably run higher. 

And once mortgage rates fall back to a normal level of 3-4%, paying off high debt like credit cards just makes much more sense. Once you consider that credit card debts average around 20%, it would be silly to try and pay off a 4% interest rate on your mortgage first. 

3. You Need a Better Emergency Fund

For those who are maxing out your retirement already and don’t have other debt, a third reason to not pay extra on your mortgage is a healthy emergency fund. 

Perhaps you just bought your house, and depleted your emergency fund for the down payment. Or maybe you have prioritized ridding yourself of high interest debt. 

Now is the time to make an emergency fund a priority as no matter how well you plan, surprises always pop up. 

4. You’re Planning to Move Soon.

On the flip side of the above reason, perhaps you are planning to move soon and you need more for a down payment. Rather than putting money on your existing house you are going to leave, it probably makes more sense for you to put it into upgrades or toward a future down payment. 

5. The Median Length of Homeownership is 13 Years.

A final reason to not pay extra on your mortgage is because most people do not stay for the length of their mortgage term. Paying off your house early will not benefit you as much if you do not stay the whole length of the mortgage term. 

Going back to point 1, having the money as a liquid asset you can access when you need it rather than simply equity that may not benefit you probably makes far more sense. 

For a more in-depth discussion of this topic, check out our Podcast Episode #22.