Should I Pay Down my Mortgage?

Financial Life Planning for Busy Parents

Have some extra cash? Wondering if you should put it toward your mortgage? Join Matt Robison and I this week as we delve into the answer to this FAQ. It’s not as simple as you might think. Why? Because why you shouldn’t is equally as compelling as why you should work to pay down that debt.

By the Numbers

Let’s start with the basics. From a strictly mathematical perspective, it usually doesn’t make sense to put extra cash into your mortgage. Why? Well, start by comparing your mortgage interest rate to the potential return on investments. If your mortgage rate is low (e.g., 3-4%) and you can potentially earn a higher return by investing your money elsewhere (e.g., 5-10% in a high yield savings account or the stock market depending on your timeline), it makes sense to keep your mortgage and invest your extra cash.

Sleep at Night

So we should just stop there, right? If we were robots, sure. But we are human, and humans have emotions which play a significant role in our decision making. If having a mortgage creates anxiety or discomfort for you, paying it off may provide a sense of freedom and autonomy. Some people prefer the peace of mind that comes with owning their home outright, even if the math suggests otherwise.

Money Relationship

Maybe you aren’t anxious about your mortgage, which is great, but there is another factor to consider from the human side of decision making. Your financial decisions might be influenced by your upbringing, cultural norms, or peer groups. Sometimes people follow a particular financial path simply because "that's what you're supposed to do" or because they've seen others do it. If you have a strong belief system with regard to debt, it is a consideration worth noting.

Life Events

Finally, the decision to pay down your mortgage early could also be motivated by significant life events, like retirement or sending kids to college, which can blend rational and emotional considerations. If you only have 15 years until retirement but refinanced to take advantage of the super low interest rates of 2020/2021 with a 30 year mortgage, you may want to pay that off by the time you retire from the workforce.

Ultimately, you need to consider both the mathematical and emotional aspects of paying down your mortgage and make a decision that aligns with your unique circumstances and goals.