Should I pay off my mortgage early?
The short answer
It depends on your interest rate, tax situation, cash reserves, timeline, and what the money would otherwise do. If your mortgage is at 6.5%, every extra dollar you put on it saves 6.5% in interest. You know exactly what you're getting. Invested money could earn more or less than that, and you can still get to it if you need it. Some people just hate owing money. That's a real reason to pay the house off, even when the math says invest.
Three ways to use an extra dollar
We get this question all the time from people planning for retirement.
You've got three options for extra cash: pay down the house, invest it, or spend it.
- Pay down the house. At 6.5%, an extra $10,000 saves about $650 of interest in the first year, and you're done paying sooner. If you deduct mortgage interest, you save a little less.
- Invest it. Broad U.S. stocks averaged about 11.5% a year from 1947 through June 2026. Some years they fell more than 20%, and nothing is guaranteed.
- Enjoy it. Spending it on a trip, a new car or the kids is a fine use of money too, and we'd rather plan for it.
Which choice is hardest to undo
Of the three, paying down the mortgage is the least reversible. A dollar sent to the bank is hard to get back without borrowing it again.
Money you leave invested, you can still pull out when the roof or the car goes. That matters most in the first few years of retirement.
Where the dollar comes from
Which account the money comes from matters too. For example, pull $20,000 from an IRA at a 22% bracket and $4,400 goes to federal tax, so only $15,600 reaches the mortgage. Under 59½, there's a 10% penalty on top of that.
- Paycheck dollars. Earned income is taxed first, so you have to earn more than a dollar to send a dollar to the bank.
- Brokerage dollars. Selling investments may trigger capital-gains tax and gives up future growth.
- Retirement-account dollars. IRA or 401(k) withdrawals may increase your taxable income, like the $20,000 example above.
Wanting to be debt-free
A lot of people tell us they just want to walk into retirement debt-free. That's a good goal, and we won't try to talk you out of it. We'll show you what it costs in dollars so you can decide.
What to review before a large payment
Here's what to look at first:
- Your mortgage interest rate
- Your tax situation
- Your cash reserves
- Your timeline
- What the money would otherwise do
Takeaway
So before you send a big check to the bank, look at your rate, your taxes, how much cash you'd have left, your timeline and which account the money comes from.
Related questions
Is paying off a mortgage more predictable than investing?
Yes. At a 6.5% rate, every extra dollar saves 6.5% in interest, and that doesn't change with the market. Stocks have averaged more over long stretches, but they can fall 20% or more in a year, and nothing is guaranteed.
Does it matter which account I use to pay off the mortgage?
Yes. Paycheck dollars are taxed first. Selling investments may trigger capital-gains tax and gives up future growth. IRA or 401(k) withdrawals may increase your taxable income. Pull $20,000 from an IRA at a 22% bracket and only $15,600 reaches the mortgage.
Is it wrong to want to be debt-free in retirement?
No. It's a good goal. We'll show you what paying it off early costs, in dollars, so you can decide.
Sources
Source: “Mortgages: Beyond the Math” by Hal Hershfield, Ph.D., Avantis Investors Monthly ETF Field Guide (June 2026), pp. 11-14, drawing on a discussion with Eric Johnson and Debbie Grose, CFP.
U.S. stocks are the CRSP total U.S. market return (market return plus the risk-free rate) from the Ken French Data Library, monthly data, January 1947 through June 2026.
Disclosures
This material is for educational purposes only and is not investment, legal, or tax advice or a recommendation of any specific course of action. Whether to prepay a mortgage depends on your interest rate, tax situation, time horizon, cash reserves, and risk tolerance. Talk with your advisor and a tax professional before acting. The 6.5% mortgage rate, the $10,000 payment and the $20,000 IRA withdrawal at a 22% federal bracket are hypothetical examples, and your numbers will differ. The 11.5% stock figure is the annualized CRSP total U.S. market return from January 1947 through June 2026, with dividends reinvested and no fees, taxes, or trading costs. Indexes cannot be invested in directly. Any illustration of investment returns is hypothetical and not a guarantee. Past performance does not guarantee future results. Investing involves risk, including possible loss of principal. Cornerstone Wealth Partners is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training.
This article is for educational purposes only and is not personalized investment, tax, or legal advice. Talk with a qualified professional about your situation.