My Mortgage Is 2.3%, I Have Money In The Bank. Should I Pay It Off?
My wife and I had a conversation recently about whether or not we should pay off our 2.3% mortgage or let it ride? It’s the kind of debate that gets people fired up.
Some swear by the peace of mind that comes with being debt-free. Others argue that it’s a financial mistake to throw cash at paying off such a low-interest loan.
In this article, we will look at the pros and cons of paying off a mortgage with very low interest rates. I’ll also share my opinions as a credentialed financial expert with more than 20 years of experience as a real estate investor.
After reading this, share your thoughts on paying off a mortgage at a low rate. What would you do in my situation, or what have you done in yours?
Table of Contents
Why Listen to Me?
I’ve been a real estate investor for more than half my life. I’ve owned properties through different market cycles. I don’t just understand housing in theory, I’ve lived it.
I’ve paid off more than a dozen mortgages early, but every single one of those had an interest rate between 5% and 9%. That’s a different story.
A mortgage in the 2s is a whole other game. A lot of people have opinions about whether or not to pay it off, and the truth is, there’s no one-size-fits-all answer.
Your decision depends on your specific situation, financial and personal.
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Our Situation
Here’s where we stand. We’ve got over $100K sitting in a savings account. The mortgage balance? Less than $85K. The interest rate? A solid 2.3% with fewer than five years left.
At this point, nearly all of our payment goes toward principal. Keeping the loan would mean paying just $5,610 in interest over the remaining term.
That’s where it gets interesting. Our savings account is earning 3.8% right now, which means our cash is growing faster than the cost of our mortgage. Over five years, that $90K would grow to $108,449, netting us $18,449 in interest, leaving us ahead by about $13K if we don’t pay off the loan early.
Funny enough, this isn’t the first time we’ve been in this situation. When we took out the mortgage, our rate was lower than what we could earn in a savings account. And now, years later, the same thing is happening again.
So, do we pay it off? I already know my answer, but let’s look closer at the factors and trade offs of paying off a low mortgage early. I’ll give my answer at the end.
A Decision More Homeowners Are Facing
This is a hot topic of conversation, and for good reason. According to Redfin, six out of every seven homeowners with a mortgage are sitting on an interest rate below 6%, and nearly a quarter locked in rates under 3%.
With rates that low, the old-school advice of paying off your mortgage early isn’t as clear-cut as it used to be. On paper, holding onto a cheap mortgage while earning higher returns elsewhere makes sense.
But personal finance isn’t just about math, it’s about peace of mind, too. Paying it off sounds great. No debt, no monthly payment. But is it the smartest move? That’s where things get interesting.
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Pro To Early Payoff: No Mortgage, No Stress
Imagine waking up and knowing that no bank owns a piece of your home. No more logging in to see a balance. No more monthly payment eating into your cash flow. It’s just you, your house, and complete financial freedom.
Some people argue that keeping a low-interest mortgage makes financial sense, and sure, the math can work. But peace of mind doesn’t come with an interest rate.
If being debt-free lets you sleep better at night, no spreadsheet can argue against that.
Related Video: My Secret Way To Get A Really Low Interest Rate On Mortgage
Pro To Early Payoff: Less Income Needs, Fewer Bills
If you’re like me and already retired (or getting ready to retire), cash flow matters in a different way. I don’t have a high income anymore, so eliminating a fixed expense like a mortgage gives me more flexibility. It’s one less bill, one less worry, and one more reason
I can do whatever I want without stress.
If you’re retired, keeping a mortgage for “higher returns” might not even matter. What matters is security and simplicity.
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Pro To Early Payoff: A Guaranteed Return You Won’t Regret
Markets go up, markets go down. Paying off your mortgage? That’s a guaranteed return. No volatility. No second-guessing. Every dollar put toward the loan is a dollar saved on interest.
Even if the rate is low, a guaranteed 2.3% return beats watching your investments take a nosedive during a market crash. Some people chase the highest possible return, but there’s nothing wrong with locking in a sure thing.
And no one has ever regretted owning their home free and clear.
Pro To Keeping Low-Interest Mortgage: Power of Owning A Home Outright
There’s a difference between owning your house and truly owning it. When the bank still has a claim, it’s not 100% yours. But when it’s paid off? No one can take it from you (easily). No worries about what the economy is doing, what rates are doing, or if lenders tighten up their standards.
In a worst-case scenario like job loss, a recession, whatever, you still have a home. Financial security isn’t just about net worth. It’s about eliminating risk, and a paid-off house removes a big one.
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Pro To Keeping Low-Interest Mortgage: Cheap Debt is an Asset
A 2.3% mortgage is practically free money. It felt low when I locked it in, and now? It’s a joke. Inflation alone makes that rate look even better. Every year, the dollars used to pay it off are worth less, which means you’re effectively paying even less over time.
When you can borrow at 2.3% and invest at 5, 7, or even 10%, the math is obvious. Some people treat debt like it’s the enemy. But smart debt, the kind that lets your money work harder, can be one of the best financial tools out there.
Pro To Keeping Low-Interest Mortgage: Your Money Works Harder Elsewhere
Let’s talk opportunity cost. If your money is sitting in a high-yield savings account at 3.8% or invested earning even more, it’s outpacing your mortgage rate. That means every dollar kept in the market is building wealth faster than paying off the house.
Paying off a mortgage early often means missing out on better returns elsewhere. And once you send that money to the bank, it’s gone. It’s locked in, no longer working for you.
Wealth-building isn’t just about what you save, it’s about where you put your money to grow.
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Pro To Keeping Low-Interest Mortgage: Inflation is Your Friend
Most people hate inflation, but homeowners with fixed-rate mortgages should love it. Over time, inflation erodes the real value of debt. What feels like a big mortgage payment today will feel like pocket change in ten years.
If your income grows with inflation but your mortgage stays the same, that payment becomes less of a burden every year. Paying off a low-rate mortgage early means giving up an advantage that only gets stronger over time.
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Pro To Keeping Low-Interest Mortgage: Liquidity Matters More Than You Think
Once you send a lump sum to the mortgage company, that money is locked away. Sure, you’ve reduced debt, but you’ve also reduced flexibility. Need cash for an emergency? You’ll have to sell investments, take on new debt, or go through the hassle of a home equity loan.
Keeping cash on hand gives you options. Be it for an emergency, an investment, or just peace of mind, liquidity matters more than most people realize.
Bonus Tip: Assumable Mortgages Are Gold
Here’s a little-known fact: Some mortgages can be transferred to a buyer. That means if rates are sky-high in a few years, your home with a 2.3% assumable mortgage becomes even more valuable.
It’s a built-in selling point that could add tens of thousands to your home’s price. Paying it off removes that leverage. Keeping it? That could be a hidden jackpot when you sell.
Not all mortgages are assumable, but if yours is, it might be worth keeping for the long game.
In-Depth Guide to Assumable Mortgages
The Math Isn’t Everything
Some choices in life aren’t about the best spreadsheet answer. Personal finance is, well, personal. Some people sleep better knowing their home is paid off. Others feel better knowing they have a pile of cash working for them.
The “right” choice depends on what makes you feel financially secure. Some people want the highest return. Others just want the peace of knowing they’re free and clear.
The best decision is the one that lets you live the life you actually want.
So, Will I Pay It Off?
I’m still deciding. At this stage, it’s not really about money anymore. There’s less than five years left on the loan, and paying it off won’t make a huge difference in our lives.
The numbers say I should keep it, but numbers don’t always tell the whole story. There’s a real psychological weight that comes with having any debt, even cheap debt.
Being totally free, owing nothing to anyone, has its own kind of value.
For now, I have been hedging. I pay extra every month, but I haven’t paid it off yet. It is nice to know I can pay it off with a few clicks.
The Choice Is Yours
There’s no universal right answer here. Some will argue for keeping a low-interest mortgage and letting their money grow elsewhere. Others will say the peace of mind is worth more than a few percentage points. Both perspectives are valid.
The best choice isn’t just about spreadsheets, it’s about what makes sense for your life. At the end of the day, the decision comes down to what matters most to you.
Neither side is wrong. The real question isn’t just can you pay it off, but should you? Every financial decision has trade-offs, and this one is no different.
What do you think?
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