Why paying off a mortgage early could be the wrong move

Key Points:

• Approximately 25% of mortgage holders make extra principal payments, with the practice peaking during 2021-2022 when interest rates were historically low, according to Rocket Mortgage data.
• Making extra payments can shorten the loan term and save tens of thousands in interest, but financial experts caution that paying down higher-interest debts like credit cards may be more beneficial than prepaying low-interest mortgages.
• Borrowers with mortgage rates over 6% stand to benefit most from extra payments, while those with rates under 3%—which are below current inflation—might consider investing extra funds instead.
• Three common strategies to pay off a mortgage early include making extra principal payments, mortgage recasts (which lower monthly payments but don’t shorten the loan term), and refinancing, though refinancing is less attractive when interest rates are high.
• Homeowners’ preferences vary by generation, with older Americans prioritizing debt-free homeownership and younger ones more inclined to invest surplus funds rather than accelerate mortgage repayment.