306 | Should You Pay Off Your Mortgage Early — Or Invest Instead?

[00:00:00] Hilary Hendershott: Hi, I am Hilary Hendershott, founder of Hendershott Wealth Management.

[00:00:04] One of the most common questions I get, and I mean once a week, is this Hilary? Does it make sense for me to pay off my mortgage early? It sounds like it should be a simple yes or no answer, but in reality, it’s one of those decisions where the math, the tax implications, and the emotional side of money don’t always line up.

[00:00:25] And if this kind of real-world financial guidance is helpful to you, you can like this video and subscribe to the channel.

[00:00:32] We share more education here on how to make thoughtful financial decisions, especially when taxes and long-term planning matter. So today I wanna walk you through the real pros and cons,  and more importantly, how to think about this decision in the context of your entire financial life.

[00:00:50] Paying off your mortgage early isn’t just about eliminating a monthly payment. It affects your cash flow, your liquidity, your tax situation. Your long-term investment growth and therefore your net worth. And for many people, your peace of mind and because everyone’s situation is different, income, risk tolerance, tax bracket, time horizon, the right answer can look very different from one household to the next.

[00:01:22] That’s why the honest answer is usually, it depends. So let’s start with the advantages.

[00:01:29] First, the most obvious benefit is it, it eliminates your largest monthly expense. Once your mortgage is gone, your monthly spend drops often dramatically. That can create flexibility to save more, invest more, retire earlier, or just feel less financial pressure.

[00:01:45] Second, you save on interest. Depending on where you are in your loan, paying off your mortgage early can save tens or even hundreds of thousands of dollars in interest over time.

[00:01:57] Third, there’s the psychological benefit for many people owning their home. Free and clear provides real peace of mind knowing you have a roof over your head. Regardless of what happens with markets or employment, can feel incredibly grounding.

[00:02:10] And finally, for some people, paying off the mortgage represents an  important personal milestone, a tangible marker of financial independence.

[00:02:20] Those are all valid reasons, but they’re not the whole story. Now let’s talk about the trade-offs first. Mortgage debt is often considered good debt. It’s tied to an asset your home that has historically appreciated over time. That’s very different from credit card debt or consumer loans, which are tied to spending or depreciating asset.

[00:02:43] Second interest rates matter. Many homeowners locked in mortgage rates well below long-term expected market returns. For example, if your mortgage rate is three or 4% and your long-term diversified, investment returns are higher than that. Paying off the mortgage early can mean giving up the opportunity for your money to compound in your investment portfolio.

[00:03:06] This concept is known as arbitrage, keeping low cost debt while investing capital at a higher expected return. Third, there’s a liquidity issue. Money used to pay off your mortgage becomes home equity and home equity is not easily accessible. If life throws you a curve ball. You can’t just pull cash out of your walls without applying for a loan.

[00:03:28] Or selling your home. And finally, there are tax considerations for some high income earners who itemize deductions. Mortgage interest can help reduce taxable income. Of course, tax laws have changed and fewer people itemized today than have historically. But for some households, this is still worth evaluating really carefully before even considering paying off a mortgage early.

[00:03:51] There’s one prerequisite I consider non-negotiable. You need a fully funded emergency reserve. That’s what I often call a curve ball account  for. When life throws you curve balls, that typically means three to six months of living expenses for W2 earners. Six to 12 months for business owners or anyone with variable income, this money should be liquid and easily accessible.

[00:04:14] [00:04:15] Basically, it needs to be in cash or a cash equivalent because paying off a mortgage without adequate reserves can leave you financially vulnerable, even if your net worth looks great on paper. So how do you decide what’s right for you? By zooming out and looking at the full picture, not just the mortgage in isolation, ask yourself, what type of loan do you have and what is your current interest rate?

[00:04:40] How many years do you have left on the mortgage? Do you have enough liquid savings set aside for emergencies and unexpected expenses? If you keep the mortgage, will you actually invest the extra cash or is it likely to get spent? Because that can ruin the plan. And just as importantly, how

[00:05:00] does having a mortgage affect your stress, your peace of mind, or your ability to sleep at night?

[00:05:07] There’s also an important trade off to keep in mind when you use cash to pay off your mortgage. That money doesn’t disappear, but it does become home equity, which is much harder to access. Quickly if you ever need it. That’s why this decision should align with both your short-term stability and your long-term goals, not just today’s interest rates or a strongly held belief that paying off your mortgage is the right thing to do because in certain situations it can actually get you in trouble.

[00:05:39] It really is worth thinking through carefully before you commit. In closing, paying off your mortgage early can feel amazing. It gives you great bragging rights, and in some cases it’s the right move. But for many people, especially those with low interest rates and longtime horizons, keeping the mortgage and investing strategically can build more long-term wealth and preserve flexibility.

[00:06:01] There’s no one size fits all answer and. That’s actually a good thing.

[00:06:06] If you want help thinking through this decision in the context of your full financial picture, you can learn more about how to start that complimentary conversation at hendershottwealth.com/contact. And if this video was helpful, be sure to like it and subscribe for more education on building wealth thoughtfully and intentionally.