Back to News

Does It Make Sense To Pay Off Your Mortgage Early?

Cypress Wealth Services

January 2021

Is mortgage debt good debt, as they say? We know the basics: debt reduction is a healthy financial goal (especially when it comes to high-interest debt such as credit cards or student loans), and it’s important to minimize debt so that when we retire, we don’t use our nest egg to pay off loans. But do these principles apply to mortgages? Is it better to throw every extra dollar toward your mortgage or invest that money instead? Like most financial choices, the answer differs depending on your unique situation. Let’s discuss the pros and cons of each strategy.

What Will Give You The Most Growth?

The most important factor when evaluating your options is that of growth. You don’t want to leave the additional funds sitting in a savings or checking account where you’re earning less than a percent of interest. You want your money to work for you, so the question to ask is, “What option will give you the biggest payoff?” In this case, you’ll find the answer by pitting your mortgage interest rate against your expected investment return. You can calculate some rough numbers to assess which decision would make more financial sense.

Let’s take a look at an example to give you some context. Say your mortgage interest rate is 5%. If you estimate that, based on your risk tolerance and time horizon, you can pursue an investment return of 4%, it would make more sense to pay down your mortgage. Otherwise, you’re potentially throwing away 1%. However, if you aren’t as conservative with your investments and believe you could earn 8% on your investment, it might be more beneficial to invest.

This may sound simple on paper, but there are plenty of factors that could affect the outcome. And as we all know, even the best estimates aren’t guaranteed. It’s important to run a thorough analysis and consider taxes on investments, mortgage interest deductions, risk, and private mortgage insurance, among the other elements of your financial life. An experienced financial advisor can run all of the numbers and conduct a complete examination of your unique situation.

Weighing Your Options

There are some pros and cons to each choice that go beyond the raw math. Liquidity is a significant pro for investing since you’ll have greater access to the funds in case of an emergency. If you put the money toward your mortgage, for all intents and purposes, it’s gone. The only way to get the money back is to sell your house or refinance your mortgage.

On the other hand, an advantage to paying down your mortgage is that your house will be paid off sooner. You will have a greater chance of being able to enter retirement without a mortgage, or at least have your mortgage paid off earlier in retirement. This lets you free up more of your money before your medical expenses start to build. If you invest, your mortgage will be another bill you have to pay while in retirement.

The Diversification Question

When it comes to minimizing risk, we have all heard of the importance of diversifying our investments. In this case, if you are heavily invested in real estate, paying off your mortgage will add even more eggs to the same basket. If the housing market crashes, so will a significant chunk of your portfolio. From a risk standpoint, you may be better off holding onto the mortgage and keeping your portfolio more diversified.

Is Being Debt-Free Important To You?

Let’s say that you have a relatively low-interest rate and aren’t worried about paying another bill in retirement. Does that mean you should hold on to your mortgage? Not necessarily, because there’s a factor that cannot be calculated or plugged into a formula: peace of mind. Some people don’t want to have any debt to their name, and eliminating it would relieve them of a financial burden. Others have no problem carrying debt if it makes financial sense and they are being wise with their money. When deciding whether you should pay off your mortgage, don’t forget to factor in your values and how you feel about debt.

It’s Not All Or Nothing

For some people, a combination of these two choices may make the most sense. Maybe that looks like adding more money to each mortgage payment to bring down the principal while still putting the bulk of your extra money toward other investments.

You can see that there are several variables to consider. And whenever you make an important financial decision, it’s always a good idea to consult with a financial advisor first. Before you pay off your mortgage, our advisors at Cypress Wealth Services would love to help you navigate the decision. We will give you personalized financial planning advice, and maybe even show you alternative investment strategies you hadn’t considered. You can reach us today by contacting one of our offices. We look forward to speaking with you soon!


About Cypress Wealth Services

Cypress Wealth Services is an independent RIA firm providing financial planning and investment management to high net worth individuals, families, business owners, and institutions. Cypress Wealth Services comprises professionals with diverse backgrounds and extensive experience and qualifications. Cypress Wealth Services is uniquely qualified to serve a broad range of client needs, and their experience and expertise act as a foundation for their client service process. The firm uses The Second Growth, which focuses on efficiently protecting, growing, and transferring to their loved ones the wealth and legacy a person has already built. With financial advisors in Palm Desert, CA, Tustin, CA, and Anchorage, AK, the firm serves clients across the country in Wealth Management Services, Fiduciary Services, 401(k) Design and Management, Investment Reporting Services, Financial and Retirement Planning, and more. For more information, visit or call 760.834.7250.