Should you pay down your mortgage or invest?

If you’re a homeowner, the thought of not having a monthly mortgage payment has likely crossed your mind. Building your home equity and saving on interest payments are some of the benefits that make paying down your mortgage attractive. But while it may be tempting to put extra cash toward paying down that debt, it may not always make the most financial sense.

Before you make additional mortgage payments, ask yourself the following questions:

1. Do you have high-interest debt?

Mortgage loans generally have relatively low interest rates. So, you’ll typically be better off paying down any high-interest debt (such as credit card debt) first before attempting to put more equity into your home.

2. Do you have enough emergency savings?

In general, we recommend you have three to six months’ worth of expenses in an emergency fund. This is designed to help get you through a potential job loss or help you pay for unexpected expenses (like home repairs or medical emergencies) without having to take on additional debt or sell investments. Make progress toward building your emergency fund before considering putting more money toward your mortgage.

3. Are you saving enough for retirement?

Before making any extra payments toward your mortgage, at least make sure you’re contributing enough to take full advantage of any employer match for retirement plans and health savings accounts (HSAs). An employer match is a powerful tool for saving, and you can’t recoup lost years, so make sure to prioritize it. If you’re not on track for the retirement you want, in most cases, it’s better to prioritize those savings—which can be in tax-advantaged accounts and have annual limits—rather than making extra payments on your mortgage.

4. What is your mortgage rate?

If the rate on your mortgage is lower than what you’d expect to earn on the alternative use of the funds, you might be better off saving that money instead. Consider the expected rate of return as well as the risk. For example, if your mortgage rate is 3% and the alternative is to save the money in a CD that earns 5%, you’re likely to be better off putting the money into the CD.

5. Does your loan have a prepayment penalty?

If you are planning to pay off all or a large share of your mortgage, some lenders may have a prepayment penalty clause that could cost you thousands if you’re not careful. If you’re not sure whether your loan has such a penalty, reach out to your lender or check your monthly mortgage statements.

Overall, whether it makes sense for you to pay down your mortgage faster depends on where you are on your path to financial stability and the specific terms of your mortgage. Before making any decision, consult with your Edward Jones financial advisor. Since everyone’s financial situation and goals are different, an Edward Jones financial advisor can help you determine whether paying off your mortgage early is right for you.