Should You Pay Off Your Mortgage Early?

Congratulations!  You saved your pennies and finally purchased your first home, shelling out a $63,000 down payment on your new digs that set you back $315,000 (the 2019 median home price in the US).  You're all moved in and ready to start writing those monthly checks for the mortgage payments.  With current interest rates hovering around 4%, those checks will be for $1203.00 per month, not including taxes or insurance.  The first few checks are pretty painless as the excitement of actually owning your own home still has you smiling, but by month six it finally sets in that you are going to be writing these checks for the next 30 years.  At that point, you vow to make your life's mission to get this debt burden off your back and pay that mortgage off early.  You start paying every extra dollar that you have toward the mortgage in order to save some of the $180,803 in interest that you would pay if the loan goes the full 30  year term. 
Is this a smart decision?  Standard financial wisdom states that being out of debt is a great thing and avoiding paying all of that interest sure would be nice.  In general, both of these statements are very true but there are a few caveats to consider before getting too crazy with those additional payments toward the mortgage.

1. Do you have at least six months of expenses saved up in an emergency fund?  It is critical to have a decent savings nest egg before sending your entire paycheck to the mortgage company in your effort to get rid of them.  What would happen if you became the victim of some unexpected layoffs?  What if you suffered an injury or illness that kept you from working for an extended period of time?  Even if you spent the previous couple of years making huge extra mortgage payments and knocked down that $252,000 loan to a more manageable $150,000, if you can't make the required payments, the bank is most likely going to foreclose on your property.  This is actually worse because they are not going to reimburse your extra payments so now you lost your home and all of the extra money you paid toward it.  On the other hand, if you had taken that extra money and put it into a safe emergency fund, you would continue making the mortgage payments and living in that comfortable home until you are back on your feet.
2. What is your interest rate vs investment returns?  This one is a little trickier because there is no definitive right or wrong but is based around your overall financial strategy and risk tolerance.  In essence though, it may not make sense to burn through your extra cash to pay off a mortgage at 4% interest when that same cash could be invested at 6% , 7% or even higher.  Many passive real estate investments are offering investors a preferred return of 8-10%.  This is called "arbitrage" - borrowing at a lower rate and investing at a higher rate.  For some people the pressure of the debt trumps all and they have to get it paid off, but it could be wiser to invest those funds and pay off the mortgage in chunks with the investment earnings.
3. What else might you need your money for?  Once those payments are made toward the mortgage, they are locked up in what is referred to as "dead equity".  The only way to get that money back is to sell the home or borrow against the home with a home equity loan.  These loans can be cumbersome and expensive and only allow you access to a percentage of the equity (usually 70-80%).  If you have kids to put through college, or your old car is about to kick the bucket, locking up all of your cash in your home might not be a good idea.  

Bottom Line:  Paying off your home mortgage early can save you a lot of money in interest payments and relieve the stress that goes along with knowing you will be in debt to the bank for 30 years.  Just don't go full bore toward payoff without having a comfortable financial backstop and some careful planning for your future needs.