Paying Extra on Your Mortgage: Good Idea or Bad?

Many people dream of that paid off home mortgage. It really is a great goal, but could there be other goals that are more important? This is where you need to think logically, not emotionally.

It is important to realize that your retirement accounts will generate income for you. This income can be used to supplement your Social Security. According to the Social Security Administration, Social Security can replace up to 40% of your pre-retirement income while most people need 70% of pre-retirement income for living expenses. Without enough money in your retirement accounts, you may not have enough income!

For many people, their priority should be funding their retirement accounts and emergency accounts. Fund 401(k), IRAs, Roth IRAs first, and if there is extra money left over, then you can put it towards your house. The money in your retirement accounts can grow with time (see Time is Money).

These days we see TV stars extolling the benefits of the reverse mortgage. "It can provide extra money to live on," they say. And this is true. But a reverse mortgage can be an expensive way to take money out of your house. If these people could go back in time and max out their retirement savings before paying extra on the house, they might be in a better position.


What really counts in retirement is cash flow. If your income covers all your expenses, you are doing fine.