Should You Pay Off Your Mortgage Early? The Answer May Surprise You

While there is certainly a degree of financial freedom that comes from owning your home free and clear, maybe it's not the best move.

Jan 18, 2014 at 2:00PM


What's better: Paying off your mortgage early or saving? Photo: AT&T YouTube.

When it comes to home ownership, the American dream used to be quite simple: Buy a house with a 30-year mortgage, make your payments, and someday down the road, you'll own your home free and clear.

Nowadays, people tend to move around a lot more than they used to, resetting the 30-year clock every time they do, greatly decreasing the likelihood that a home will ever be paid off in full. Also, people tap into their home's equity and refinance their mortgages much more today than they used to for repairs, upgrades, etc., often creating a new 30-year loan in the process.

This got me thinking: Does anyone actually pay off their home in 30 years (or less) anymore? Is this a goal younger homeowners have in mind? And perhaps most importantly, is it worth it?

How many people actually live "rent-free"?
The actual number depends on where you live, but almost one-third (29.3%) of U.S. homeowners have no mortgage. As would be expected, the percentage gets higher in the older age groups. Of those homeowners over 85 years old, over 77% own their homes outright, and about 63% of those in the 74 to 84 age group own their homes.


One interesting statistic is the higher percentage in the lowest age group, those homeowners from ages 20 to 24. 34.5% of these young homeowners have no mortgage, and generally speaking, these young homeowners either inherited their money or have some kind of assistance. Another reason could be the fact that most younger buyers tend to buy more inexpensive, or "starter" homes and have fewer financial commitments (like kids), making it more feasible to pay off a house quickly.

The percentage of homeowners who own homes free and clear has dropped steadily over the past several decades, from a high of 42% of homeowners in 1960. However, after years of building up our "debt culture," we are beginning to see younger homeowners make paying down their debts a priority, having witnessed the effect of too much debt on the older generation. In fact, the average percentage of equity in the average home is up to about 45% from a low of around 38% in 2009.


A few actual accounts...
The website has a pretty interesting thread of people who share their experiences with a paid-off mortgage. The first entry is from a 35-year-old whose parents paid off his mortgage as a gift, and he now puts his former mortgage payment into a retirement account. 

Another entry is from a 43-year-old who paid off his mortgage in just over 12 years as a means of financial safety should he ever lose his job. Several other entrants chose to buy fixer-upper houses in order to have the lowest purchase price, and hence the lowest mortgage possible. Another homeowner took a loan from his IRA in order to build a home without a mortgage.

Foolish final thoughts
While not having a mortgage may indeed be freeing, not everyone agrees it's the best course of action. According to many experts, paying off your mortgage may not be the best use of your money. While it certainly would be nice to not have to make that $2,000 house payment every month, it has not been hard to find fairly safe investments at any point in history that offer returns higher than the interest a mortgage is costing you.

For instance, let's say I owe $320,000 on my house on a 3.875% 30-year fixed mortgage and happen to come into some money and have enough in the bank to pay off my balance. If instead of simply paying off my balance, I invest the money in a pretty safe income fund that pays, say 6%, my $320,000 investment should be worth about $1.7 million in 30 years, which far outweighs the $541,713 in mortgage payments I would have made over that time.

Taking it a step further
The recovering housing market has helped families, but millions of Americans have waited on the sidelines since the stock market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their retirement in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers