Should You Pay Off Your Mortgage Ahead of Time? The Answer Will Shock You

Financial guru Suze Orman never fails to entertain me. I may not agree with every piece of advice she offers, but Orman always makes me think. On a recent episode of Orman's podcast Women & Money, a listener asked about her mortgage. She's carrying a low interest rate of 3% and wondered if she should focus on putting an extra $10,000 a year toward the mortgage to pay it off early or invest that money instead.

I was sure of what Orman's answer would be. Like every other expert opinion I've recently read, Orman would recommend that the listener invest the money instead of paying off a mortgage with such a low interest rate. After all, if she invested in a financial product earning as little as 4% to 5% a year, she'd still be ahead.

I could not have been more wrong. In this case, Orman suggested that the woman take a different approach.

Orman's mortgage advice

Orman prefaced her advice by admitting that the question was a little tricky for her to answer, primarily because there are so many unknowns. For example:

• Orman knows the listener has 26 years left on her mortgage, but she doesn't know how long the listener intends to work.
• Orman doesn't know anything about the woman's investment skills. Will she invest in a way that provides her a return of 3% or will her investments bring in much more? Is she a nervous investor who will sell when the going gets tough?
• Orman doesn't know if the listener will stay in the home for 30 years or move away much sooner.

"But let me tell you what I do know something about," Orman said. "I know that nothing makes a woman in particular feel more secure than owning her own home outright."

The value of financial security

As financial writers, we tend to focus on cold, hard facts. And statistically speaking, investing $10,000 a year will likely net a person more than paying off a mortgage early. However, Orman pointed to the value of financial security.

"And what have I told you year in and year out is the goal of money?" Orman asked. "The goal of money is to make you feel secure. So here's the question back to you. How would you feel knowing that in another 15 years or so, you would own that home outright? How would that make you feel?"

Orman followed up by saying, "And remember my law of money. It's better to invest in the known versus the unknown."

Orman asked the listener to think about what happens if she gets sick or in an accident and cannot work. Would having a home paid for leave more money in the bank each month, ultimately making her feel more secure?

A counterpoint

What I like about Orman is how much she seems to care about the people she advises. She exposes her heart as she attempts to help them figure out their finances. That said, I can think of several reasons investing might be the better option for many of us. They include:

• Historically, the S&P 500 has averaged gains of around 10% a year. While some years have been much lower and others higher, it averages 10% over the long term. No matter how you cut it, a 10% return gives you more money than paying off a 3% mortgage rate will save you.
• Homeowners will always have a house payment of some kind. Even after our mortgages are paid off, we'll spend money each month on property taxes, homeowners insurance, and maintenance. Those expenses must be planned for whether there's a mortgage or not.
• The average length of homeownership is eight years, according to The Zebra. Whether a homeowner needs to move out of state for a new job, sell their home to downsize, or decide to travel, we don't tend to stay in one place for very long. For many of us, working to pay a mortgage off early may leave us with more equity, but chances are, we'll have to borrow money to buy a new home somewhere else.

Orman may not have given the listener a clear answer, but she did remind her that she has more than one option. And perhaps offering more options is the best thing money can do for any of us.