Just so you know: Life Before Budget has partnered with CardRatings for our coverage of credit card products. Life Before Budget and CardRatings may receive a commission from card issuers. The content of this article as well as comments from users are not meant to be professional financial advice and have not been reviewed by the advertisers. Please read our disclosures page for more details.

Many things in personal finance are pretty easy to figure out. If we want to become wealthy we can:

• plan for huge expenses
• avoid looking for happiness in stores
• invest money
• buy used cars instead of new ones

However, some topics are a bit more difficult to figure out. For instance, I love reward credit cards because I have saved over $30,000 in travel by using them. I’ve received a free trip to New York City with my wife, saved a lot of money on a Disney World trip with my family, and went on many other free or almost free vacations.

But many reasonable people disagree with me. They may not like credit cards because they may enable us to go into debt and spend beyond our means.

I suppose that’s where we are with our topic today. Reasonable people may say that we should pay off our mortgage early. Other reasonable people may argue that we shouldn’t. Unlike failing to invest money or buying new cars, either perspective can allow us to build wealth.

So let’s explore this a little more and see if we can come to some type of conclusion. Should we pay off our mortgage early?

We shouldn’t

Over the past several years, mortgage rates have been at all-time lows. As I sit here and type this today, 30-year fixed rate mortgages sit at 4.54%. A few years ago, these rates were even lower, dropping as low as 3%. Even the mortgage on my last house had an interest rate of 3.125%.

Unlike credit card debt, car debt, or even student loan debt, mortgage debt is extremely cheap. Therefore, it makes sense for mortgage debt to be the last debt that we will pay off. No matter what we decide to do regarding our mortgage, it definitely makes sense to pay off all of our other debt first.

But after we pay off all of our other debt, it also makes sense for us to stop before we pay off our mortgage. After all, the interest rate on our mortgage is so low that it will be better to invest any extra money instead of paying off our mortgage.

If we get a return of 7% on our index funds, we will be ahead when compared to our low interest rate mortgage.

No matter what, a 7% return on our investments is ahead of a 4.54% interest rate on our mortgage debt.

We should

If our goal is to build wealth, then one of the things that will help us out immensely is getting rid of all of our debt.

If our debt is gone, then every single dollar that we make can help us build wealth.

This is important to recognize. After normal day-to-day expenses, every dollar that we make can be used to save and invest. This will certainly make it a lot easier to become financially independent!

Think about the mortgage payment that you have now. Perhaps you are sending $700, $1,200, or even $2,500 or more to your mortgage company every … single … month.

Now imagine that your mortgage payment is gone. Instantly, you have $10,000 or more dollars that you can use to save, invest, or even spend. Since this is tax free money, it would be like you got a $14,000 raise!

So obviously, we should pay off our mortgage early!

Even the tax deduction that we used to get for our mortgage interest has been eliminated on many of our tax returns. Although there is still a deduction for mortgage interest, fewer people will take advantage of it.

Before 2018: The standard deduction for a married couple was $12,700
Currently: The standard deduction for a married couple is $24,000

Since the standard deduction went up to $24,000, fewer people will use the itemized deductions. Therefore, fewer people will be able to deduct mortgage interest. If you want to read more about how this change affected you in 2018, check out this article or talk to a tax professional.

My verdict

I think that we should ask a hypothetical question to see if we should pay off our mortgage debt early.

Let’s pretend that you don’t have a mortgage and that your house is worth $200,000. If this is true, then you could probably take out a mortgage on your house for 80% of its value, or $160,000.

Will you go to the bank and take out a mortgage loan for $160,000?

For most people, the answer to this question is probably no. We wouldn’t go to the bank and get a new mortgage loan. And if we wouldn’t get a new mortgage loan, then it doesn’t make sense to try to keep our current mortgage. Not paying our mortgage off is effectively the same as getting a new mortgage loan.

If we think about it this way, I think that most people would probably decide to pay off their mortgage early. But honestly, there isn’t a wrong answer to this question. Whether we invest more or pay off our mortgage early, we will definitely be on the path to building a lot of wealth.

However, this question gets at the true meaning behind paying off our mortgage.

If we want to lower our risk, then it makes sense to pay off our mortgage. But if we are a little bit more risky with our finances, then we may want to keep our mortgage debt and invest more money instead.

For my wife and I, it’s pretty easy. We are currently working towards paying off our mortgage early and we are excited that we will be completely debt free in a couple of years. Once we are out of debt, there wouldn’t be anything (besides a huge medical problem or other unforeseen expense) that would cause us to go back into debt.

I also think that we will be able to pay down more money on the mortgage than we could invest if we didn’t have the goal of paying it off. For me, it’s important to recognize that personal finance isn’t just a math problem. Although we might come out ahead by not paying off the mortgage, we also might end up behind.

I’m happy to lower my risk!

Let us know in the comments what you are deciding to do about your mortgage. After paying off all of your other debt, are you going to try to pay off your mortgage early? Or will you be investing more instead? Like I said, either answer can be a good one!

And thanks for reading!

~Nathan

Let’s keep living a great life … with the help of money. So what’s next?

• You can travel for free by using rewards credit cards.
• You can get motivated and get out of debt.
• You can check out the next post or the previous post and continue to learn.

But no matter what you decide to do, let’s leave the ordinary behind and take action today!

Just so you know: Life Before Budget has partnered with CardRatings for our coverage of credit card products. Life Before Budget and CardRatings may receive a commission from card issuers. The content of this article as well as comments from users are not meant to be professional financial advice and have not been reviewed by the advertisers. Please read our disclosures page for more details.