I Just Told My Friend Not to Make Extra Payments on Her Mortgage. Here's Why

My friend Tina and her husband Sean bought a house in 2020 at what I'd call the perfect time. Back then, it was fairly inexpensive to sign a mortgage, and home values hadn't yet completely skyrocketed.

Since buying their home, Tina and Sean have made a point to pay extra on their mortgage. What they generally do is send in their regular payment, and then make a follow-up payment a couple of weeks later at the end of the month, the amount of which will depend on what they can swing based on other expenses.

When Tina told me what they'd been doing, I commended her for trying to pay off her mortgage early. I also told her that making those extra payments actually made no sense.

The upside of making extra mortgage payments

The benefit of paying extra on a mortgage is clear: The more you do that, the sooner you pay off your home -- and the less interest you accrue over time.

Paying off a mortgage early could make sense for some people. But it definitely does not make sense in my friends' situation.

When you're better off paying your mortgage on schedule

The reason I told Tina to stop making extra payments on her mortgage is twofold. First, she has a super low mortgage rate of just under 3%. In 2020, that wasn't a hard rate to get for a 30-year loan.

Meanwhile, Tina's high-yield savings account is currently paying her over 4% on her money. Once I pointed out that her savings account rate was higher than her mortgage rate, she immediately started questioning her decision.

But here's the other factor I pointed out: Tina and Sean bought a really old house. And while it's awesome to look at, it's in need of serious work. A lot of the lighting still needs to be replaced, which is probably a more complex job than expected. And the kitchen appliances could fail on them at any minute.

These, of course, are just the issues they know about. While they had a home inspection, those are rarely perfect. And besides, a given component of a home could be in fine shape at the time of an inspection and deteriorate a couple of years down the line.

I specifically advised Tina to stop making extra mortgage payments due to the age and condition of her home. If she needs to make repairs and has her cash tied up in her home, it'll cost her more to pull it out right now, whether in the form of a cash-out refinance or home equity loan, because of how high borrowing rates are today. To put it another way, she shouldn't put thousands of dollars extra into a mortgage charging her under 3% when it might easily cost her 7% to tap her home equity to make repairs.

Think carefully before making extra mortgage payments

It's easy to see why the idea of making extra mortgage payments holds a lot of appeal. And if you're ever in that position, that's great! It means you've done an awesome job of budgeting out your expenses and leaving yourself with plenty of wiggle room.

But in some situations, paying off a mortgage early doesn't make sense. So if you have a super-low rate on your mortgage and a home that's likely to need extensive repairs, you may want to hang on to your cash -- especially at a time when savings accounts are paying so generously.