Should You Pay Off Your Mortgage Early?

1. Guaranteed Return Equal to Your Interest Rate

Every extra dollar you put toward principal saves you interest at your mortgage rate. If you have a 6.5% mortgage, paying it off early is like earning a guaranteed 6.5% return—risk-free.

Example: On a $300,000 mortgage at 6.5%, you'll pay ~$383,000 in interest over 30 years. Pay it off in 20 years instead, and you save ~$143,000 in interest.

Nevada context: With current rates in the 6-7% range (as of 2025), this guaranteed return is compelling—beating most "safe" investments like savings accounts or bonds.

2. Peace of Mind & Financial Freedom

Owning your home outright eliminates your largest monthly expense. Many homeowners describe this as liberating—no matter what happens (job loss, market crash), you'll always have a place to live.

Psychological benefit: Dave Ramsey famously advocates for this—the emotional security of zero debt often outweighs pure mathematical optimization. If you're risk-averse or nearing retirement, this matters.

3. Lower Monthly Expenses in Retirement

Entering retirement debt-free reduces your fixed costs. Instead of needing $5,000/month to cover bills, maybe you only need $2,500 (just taxes, insurance, utilities).

This means you can retire earlier or live comfortably on less income. For Nevada retirees on fixed pensions or Social Security, this is huge.

4. Simplifies Estate Planning

A paid-off home passes cleanly to heirs without the complication of an outstanding mortgage. Your family inherits an asset, not a liability (though they'll still owe property taxes/insurance).

1. Opportunity Cost: Investing Could Earn More

Historically, the stock market returns ~10% annually. If your mortgage rate is 3.5%, you're "losing" 6.5% per year by paying off debt instead of investing.

Example: $500/month extra toward mortgage (at 3.5%) saves ~$30,000 in interest over 15 years. The same $500/month invested at 8% grows to ~$173,000 over 15 years—a $143,000 difference.

The math favors investing when your mortgage rate is low. Many financial advisors recommend this route for younger homeowners (who have time for market growth).

2. Loss of Liquidity

Once you pay down your mortgage, that cash is locked in your home. You can't easily access it unless you sell, refinance, or get a HELOC.

Risk: If you face an emergency (medical bill, job loss) and you've sunk all extra cash into your home, you might not have liquid savings. Meanwhile, investments in a brokerage account can be sold quickly.

Rule of thumb: Keep 6-12 months of expenses in emergency savings before aggressively paying down mortgage or investing heavily.

3. Tax Deduction Benefit (Though Smaller Now)

Mortgage interest is tax-deductible (if you itemize). After the 2017 tax law changes, fewer people itemize (the standard deduction is high), but if you do, your effective mortgage rate is lower.

Example: If you're in the 24% tax bracket and pay $20,000/year in mortgage interest, you save ~$4,800 on taxes. Your effective interest rate drops from 6% to ~4.5%.

Paying off early means losing this deduction. However, Nevada has no state income tax, so federal is your only consideration—and many NV homeowners don't itemize anyway.

4. Inflation Works in Your Favor

A fixed-rate mortgage means your payment stays the same while inflation erodes its real value. In 20 years, that $2,000/month payment will feel much cheaper (as wages/prices rise).

By stretching out the mortgage, you're effectively paying it off with "cheaper dollars" later. This is especially true in high-inflation periods.

5. Low Rates = Cheap Debt (Leverage)

If you locked in a 3% or 3.5% mortgage during 2020-2021, that's "the cheapest money you'll ever borrow." Many financial experts say never pay that off early—invest the extra cash instead and enjoy the arbitrage (earning 8-10% while paying 3%).

Strategy 1: Make One Extra Payment Per Year

Instead of committing all extra cash to the mortgage, make one extra principal payment per year (equivalent to your regular payment). This shortens a 30-year mortgage to ~25 years and saves significant interest—without sacrificing much liquidity.

Example: On a $300k loan at 6.5%, one extra $1,900 payment/year saves ~$60,000 in interest and pays off 5 years early. The rest of your extra income? Invest it.

Strategy 2: Refinance to a Shorter Term (15-Year)

If rates have dropped (or if you can afford higher payments), refinance to a 15-year mortgage. You'll get a lower rate (typically 0.5-1% less than a 30-year) and forced discipline to pay it off faster.

Trade-off: Higher monthly payment, but you'll save massive interest and own the home in half the time. Good for mid-career professionals with stable income.

Strategy 3: Pay Down High-Rate Mortgage, Invest Low-Rate

Use a breakeven analysis: If your mortgage rate is above ~5%, prioritize paying it down. If it's below 4%, prioritize investing (since stock market long-term averages beat that).

In between? Do both—split extra funds 50/50 between mortgage and investment account. You hedge your bets and still make progress on both fronts.

Strategy 4: Prioritize High-Interest Debt First

Before paying extra on a 6% mortgage, eliminate any credit card debt (15-25% interest), car loans (7-10%), or student loans (especially private ones). Those cost you more and should be knocked out first. Then tackle the mortgage or invest.

No State Income Tax = More Cash Flow

Nevada's lack of state income tax means you keep more of your paycheck—extra money that can go toward mortgage or investments. Take advantage of this by accelerating one or the other.

Property Taxes Are Relatively Low

Nevada's effective property tax rate is ~0.6% (compared to 2%+ in states like NJ or TX). Even after paying off your mortgage, your ongoing housing costs (just taxes + insurance) will be manageable.

Example: $400k home in Las Vegas = ~$2,400/year in property taxes + ~$1,500 insurance = $325/month fixed housing cost once mortgage is paid. Very doable in retirement.

Rising Home Values in Vegas/Reno

Nevada home values have appreciated significantly (especially post-2020). If your home has gained equity, you could consider a cash-out refinance to invest that equity elsewhere rather than rushing to pay off.