Swap It, Don’t Stop It: How to Spend Less on
Things You Love

There are many exciting things about buying a new home, from meeting your new neighbors to upgrading your home decor (with reason, of course) to starting to build equity in what’s likely to become one of your top sources of wealth.

The flip side, of course, is that suddenly owing a bank thousands upon thousands of dollars can be stressful—as is the idea that it’ll likely stay that way for many years. That may have you wondering whether it’d be wise to pay off your mortgage sooner.

The short answer? It depends.

On one hand, paying off your mortgage early means you can’t use that money to accomplish other, perhaps more pressing goals. “People are woefully undersaved,” says Greg McBride, Bankrate’s Chief Financial Analyst. “Paying down low-rate, tax-deductible debt [like a mortgage] is a low priority if you aren’t saving enough.”

Because homes aren’t a liquid asset that you can easily tap in times of need, if you realize your emergency savings is lacking, allocate any extra dollars you have at the end of the month there instead. “You want to put your cash to work in other, more efficient ways, and retain your flexibility,” McBride says. “Tying up money in a home isn’t flexible.”

If you’re already on your way to a healthy emergency fund, there’s another consideration: Invest the dollars you’d put toward wiping out your mortgage early, and the payoff could be exponential.

Let’s say you have a $100,000 mortgage and an annual interest rate of 3.5 percent. Assuming a 30-year fixed-rate mortgage, you’ll pay $61,657 in interest if you make the minimum payment of about $449 (note this doesn’t include taxes, insurance or other related costs). But increase your payments by $200 each month, and you can save almost $29,000 in interest over the life of the mortgage. Not too shabby. However, if you invest that extra $200 and get a reasonable 7-percent average return, and you can have $246,000 after 30 years—or more than eight times the mortgage interest you saved.

While the math is clear, Casey Fleming, a mortgage advisor at C2 Financial Corporation and author of “The Loan Guide: How to Get the Best Possible Mortgage,” says it’s also important to consider your mindset and personal goals when debating whether to pay off your mortgage early.

“Some folks want to retire early, [while] others just want the peace of mind, knowing their debts are paid off,” he says. “While paying off your mortgage may not be the best strategy for having the biggest pile of money when you die, it’s an excellent strategy if you want to get off .