While being mortgage-free is emotionally appealing, it's not always the smartest financial move. Financial planners suggest prioritizing other financial goals before paying off your mortgage. Here are three points to consider in 2025:
1. Tackle debt first
Paying off credit card balances or other high-interest debt should take precedence. With average credit card interest rates hovering around 20-25 percent in 2025, paying down this debt offers an immediate return equivalent to the interest rate. Eliminating a $10,000 credit card balance at 22 percent interest saves you $2,200 annually'far outpacing the benefits of paying down a mortgage with a lower interest rate.
2. Prioritize retirement savings
Financial planners emphasize that a mortgage is considered "good debt" due to its relatively low interest rates and potential tax deductions. Instead of extra mortgage payments, focus on maxing out tax-advantaged retirement accounts.
The final decade before retirement is critical for compounding growth in these accounts. For instance, contributing $24,500 annually to a 401(k) at a 7 percent average return could grow significantly by retirement, outpacing the savings from early mortgage payoff.
3. Build a Robust Emergency Fund
Build an emergency fund covering 6-12 months of living expenses and keep it in a high-yield savings account. Rates are around 4-5 percent.
Without an emergency fund a disaster or sudden expense could force you to dip into retirement plans.
