Why paying off a mortgage early could be the wrong move

About 1 in 4 mortgage holders make extra payments on their loans, according to a recent report from Rocket Mortgage.

The analysis invites a question: Is paying extra on a mortgage a good idea?

If you kick in an additional $50 or $100 on every monthly mortgage payment, you gradually shorten the length of the loan. You also save money on interest: potentially, tens of thousands of dollars.

But mortgages tend to have lower interest rates than other loans. If you have a credit card, personal loan or home equity loan, you’re probably paying higher borrowing costs on that loan than on your mortgage.

“For a lot of people, even if their mortgage is their largest debt, dollar-wise, it also tends to be their debt with the lowest interest rate,” said Kate Wood, a lending expert at NerdWallet.

The Rocket Mortgage analysis, based on payments by its customers, found that at least 25% of borrowers have made extra principal payments over the past five years. The rate of extra payments peaked in 2021 and 2022, an era of historically low rates, and has gradually declined in the years since.

Paying extra on a mortgage would seem to make the most…

Original source: https://www.usatoday.com/money/