Here's Why I Stopped Making Extra Payments on My Mortgage

In 2021, I relocated from Chicago to Ohio and purchased a home. I got a 30-year mortgage, but I wanted to pay it off as quickly as possible, so I was diligent about making extra payments (and making sure my mortgage lender put the extra cash toward the principal, not future payments!).

At the time, it made sense. My mortgage interest rate was low, but interest rates for certificates of deposit (CDs) and high-yield savings accounts were also low, the market seemed volatile, and I wanted to pay off the mortgage as quickly as I could. It felt good to know that just a few hundred dollars here or there would take months off of the life of my mortgage.

But then I started doing some math and decided to stop putting anything extra toward my mortgage at all. Here's why.

Paying off my low-interest mortgage was giving away free money

My mortgage rate is locked in at below 4%, which means I can earn more money putting extra payments in a high-yield savings account. Let's say over the course of a year, I could pay $10,000 extra toward my mortgage. (I chose that number for ease of math, not because I have an extra $10,000 laying around.)

Let's see what that would look like after 10 years:

• If I put $10,000 in a savings account and add $833 a month (so $10,000 a year) and assume a 5% return (close to what my current savings account offers), after 10 years, I'll have $145,820, thanks to compound interest. It's worth noting that savings account interest rates are unusually high right now, and are likely to fall before 10 years are up.
• Assuming an original loan of $320,000 on a 30-year loan at 4% interest (and considering I've already paid on it for three years), paying an extra $833 would save me $99,965 in interest.

By not paying off the mortgage early and instead putting the money in a high-yield savings account, I'll earn an extra $45,855 ($145,820 minus $99,965) over 10 years. ​And that's just putting it in a savings account. If I invested the money and got closer to 8% returns, I could earn a whole lot more.

There is an emotional aspect to paying off your home

Looking at the numbers, it's pretty clear that it makes more sense to save and invest than pay extra on your mortgage, right? But that ignores the emotional aspect of paying off your home. Paying off what is (for most of us) the largest purchase we'll ever make can be incredibly freeing. That extra money can be used to save or invest later and can give you breathing room in your budget.

Plus, if you're planning to retire soon or expect to pay for your kids' college education in a few years, it might make sense to pay extra now so that added mortgage expense is gone.

What if you have a higher interest rate?

I have a pretty low mortgage rate, so it makes sense for me not to pay extra. But if you have a higher interest rate, this math might not work the same way. Let's use the same numbers as we did before, but with a 7% mortgage rate:

• I'll still have $145,820 after 10 years if I put $10,000 in a savings account and add $833 a month, assuming that 5% return.
• If I have an original balance of $320,000 on a 27-year loan with 7% interest, I'll save $169,443.24 in interest by the time I pay off my loan, which is more than I'll make in a savings account.

There's a few other things to consider about this math:

• If I invested the $10,000 instead of putting it in a savings account, I could probably earn more than 4%. That might tip the scales so it makes more sense to invest than pay extra on the mortgage.
• The pay-off time for the mortgage example above is 13 years and six months, so I would save the $169,443.24 in 13.5 years, not 10.

As you can see, the conversation gets more complicated if you have a higher interest rate. For me, it makes no sense to pay off my low-interest mortgage and leave money on the table. To make the decision for yourself, consider your interest rate and the emotional impact of paying off your house.