If you aren’t familiar with Dave Ramsey, you probably haven’t heard of his “seven baby steps”. Dave’s seven step financial plan has helped millions of Americans to break free of debt and achieve financial freedom.

The seven baby steps are:

  1. Save 1,000 emergency fund.
  2. Pay off all non-mortgage debt ASAP.
  3. Save 3-6 months’ of expenses.
  4. Invest 15% of income for retirement.
  5. College funding for children.
  6. Pay off mortgage.
  7. Build wealth and give!

As you can see, baby step #6 is paying off the mortgage. Dave takes a very rigid “one size fits all” approach, but I personally believe that every situation is different.

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Paying off a mortgage early has clear benefits. Let’s say your mortgage is $1,600/month.

Imagine what you could do with that money if you freed up $1,600/month! There’s no denying that paying off the house early has benefits.

But… is paying off a mortgage super early ALWAYS the best option?

There are a few situations where I think it doesn’t make sense to pay off your mortgage ASAP:

  1. You’re way behind on saving for retirement.
  2. You’re tired of being so frugal.
  3. You’re renting out a room.

Side note: To be clear, I do NOT recommend paying off a mortgage over 30+ years. I generally advise people to take out a 15 year mortgage. For the purposes of this post, “paying it off early” refers to paying off a mortgage in much less than 15 years (for example, over 5 years).

We’re all different, and we all have unique values, situations, and preferences.

Let’s look at a specific example.

Susie is 30 years old. She has always made smart financial choices and has never had any debt aside from her mortgage. She has been contributing 15% of her income to her 401(k) (which has a generous employer match) since she was 22.

Susie recently purchased a small $120,000 home. Susie plans to pay off her mortgage over 5 years. In order to do this, she has to be somewhat frugal but she still has some money left for traveling and other fun activities.

Does it make sense for Susie to pay off her mortgage as fast as she possibly can?  Yes.

She’s doing great on retirement savings, her mortgage payment is low, and she has plenty of cash available to make extra payments toward her mortgage AND enjoy her life for the next five years.

Let’s look at someone in a very different situation.

Abby is also 30 years old. Abby spent her 20’s aggressively paying off $200,000 of student loan debt from law school. Abby postponed investing and currently has $0 saved for retirement. Her employer does not offer a 401(k) match. Abby and her husband recently purchased a $200,000 home.

They are considering paying off their mortgage early, but they think their money might be better spent elsewhere. They’re concerned about how far behind they are on saving for retirement, and they’re both feeling burnt out with frugality.

They worked multiple jobs and lived extremely frugally while paying off massive student loan debt, so they’re looking forward to traveling, relaxing, and enjoying life more.

Does it make sense for Abby and her husband to pay off their mortgage as fast as possible? Maybe. Maybe not.

If their income is high enough that they can pay off the mortgage early AND aggressively save for retirement AND travel/enjoy life, then paying off the mortgage early probably does make sense.

On the other hand, let’s say that they decide to pay their mortgage off over seven years and their income is too low to do that AND have money left over for other things.

In that case, they’ll spend the next seven years working their asses off when they’ve already spent several years making sacrifices to get out of debt. They might decide that it simply isn’t worth it and they’d rather pay off their mortgage over 15 years.

Nothing wrong with that!

You’re Renting out a Room

In Abby’s case, the issue was that she was tired of being so frugal and she was behind on saving for retirement. Let’s examine an entirely different scenario.

What if you’re renting out a room of your house?

Let’s say you’re paying $1,000/month for your mortgage on a $100,000 condo and you charge your roommate $700/month for rent. This means that you’ll only pay $300/month toward your mortgage (over 15 years, this would be $54,000 total).

Paying $54,000 is a much better deal than paying $100,000 (plus interest)!

In this scenario, it makes sense not to pay off your mortgage early. Instead of focusing all your money on attacking the mortgage, you could put it toward other priorities instead, like investing, saving for a new car, or traveling.

One Last Thought

Dave Ramsey’s recommendation is to do whatever you can to pay off your mortgage as quickly as possible.

Google “paying off a mortgage early” and you’ll find hundreds of articles about people who have paid off their mortgages in unbelievably short time frames.

But is it worth it to pay off your $200,000 mortgage in five years if you’re behind on retirement saving and you’re tired of being frugal?

Maybe not. It might also not make sense to pay off your mortgage early if you’re renting out a room.

Everyone has their own unique situation.

To be clear – it doesn’t necessarily need to be one or the other (paying off your mortgage crazy fast or paying it off over 15+ years). You could, for example, pay off your mortgage over 10 or 12 years instead of 5 or 15.

There are plenty of options.

Do whatever works best for you and your unique situation!

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