Real Estate Tips |7 min read

Is it Better to Pay Off a Mortgage Early or Invest in Real Estate?

As an investor or rental business owner, you could find yourself with some extra cash each month. Deciding what to do with this extra cash is entirely up to you. Most investors debate between two scenarios–pay off a mortgage early or invest in new properties. If you want to learn more about each of these options, just keep reading. We’ll review each option’s pros and cons and how you can minimize financial risks. 


Contents of This Article:

Evaluate Your Current Finances–What Can You Afford?

First things first, evaluate your current finances. For example, how much are you bringing in each month, and how much do you have left over after all your bills are paid?


If your income recently increased or you have extra finances to distribute, you may have a few different options. For instance, you can pay off a mortgage early, reinvest in another property, or save it for the future. 

The decision is up to you, but it’s essential to go over the pros and cons of all your options. Keep reading to learn why some people pay off a mortgage early and why others invest in real estate instead. 

Is It Better to Pay Off a Mortgage Early? Pros and Cons

Completely paying off your mortgage so you can be debt-free is a very enticing choice for homeowners. After all, once your mortgage is fully paid, you own the home and no longer have payments, saving you money in the long run. 

If you’re thinking about paying off your mortgage early, there are a few extra considerations. For instance, where are you in terms of debt repayment? It won’t hurt to pay as much as possible if you’re beginning to pay off your mortgage loan. However, putting your money into a retirement account or another investment could be more beneficial if you’re later paying off your mortgage.

Here are the pros and cons of paying off your mortgage early.

Advantages of Paying a Mortgage Early

  • Save on Interest Payments- If you pay a mortgage off early, you can save tons of money on the interest you’d have to pay later on. 
  • You’ll be Debt-Free- The faster you own your property, the less debt you’ll have to pay. 
  • Extra Funds for Other Investments- When you no longer have to make mortgage payments, you can use the money for other things, like new investments or something you enjoy. pros-and-cons-of-paying-mortgage

Cons of Paying a Mortgage Off Early

  • Fewer Savings- If you’re using your savings to pay off a mortgage early, you’ll have less money saved up in case of a financial emergency. 
  • No More Tax Deductions- You can write off tax deductions on mortgage interest payments. So, if you pay it off early, you lose some tax deductions.
  • Prepayment Penalties- Depending on your lender, you could face some prepayment penalties for paying off too much of your mortgage early, based on your outstanding principal balance. 

What to Consider Before Paying Off a Mortgage Early

While most homeowners and investors strive to pay off their mortgages quickly, there are other financial goals to consider. Luckily, there are plenty of ways to benefit your financial health while paying your mortgage. 

So, if you are debating using the extra cash to pay off your mortgage early, consider these additional factors

  1. Financial Goals- What are your long-term financial goals? Are you saving for retirement? Do you have any other loans you need to pay off? Decide whether or not there are other places you could put your money for the time being. 
  2. Savings- It may not be the best idea if you’re cutting into your savings or using potential savings to pay off your mortgage. After all, you can’t plan for emergency expenses without savings. 
  3. Investment Goals- What are your long-term investment goals? Do you plan on investing in other properties? How long do you plan on renting your properties? These factors can affect whether you pay off a mortgage early or not.

Is Investing in Real Estate a Better Move?

Paying off your mortgage is great because it gives you peace of mind. However, if you come across extra finances and would rather diversify your investments, there are several other options. For instance, you could use your extra money for a real estate investment. 


Investing in real estate can increase your financial security because it essentially pays for itself–and leaves you with a steady income stream. That said, rental properties can indeed take a ton of time and effort to manage and maintain. However, most landlords hire rental management in Fairfax. That way, you know your rental properties are always cared for, even when you’re not around. 

Nonetheless, before investing in real estate, it’s crucial to understand the pros and cons.  

Pros and Cons of Investing in Real Estate Instead

Investing in real estate is a great way to build financial wealth and potentially set yourself up for retirement. But like any investment, investing in real estate instead of paying off a mortgage early has pros and cons. Here are some important factors to consider while deciding between the two. 

Advantages of Investing in Real Estate

  • More Cash Flow- If your rentals are occupied, you earn monthly rental income from tenants, increasing your cash flow. 
  • Tax Write-Offs- When you own real estate, you benefit from tax write-offs like interest, insurance, depreciation, home repairs, and more.
  • Build Wealth- Rental properties consistently earn income and appreciate over time. As such, you can build financial security while your property increases in value. pros-and-cons-of-investing-in-real-estate

Disadvantages of Investing in Real Estate Instead

  • More Expenses- When you have a new real estate investment, you have more bills and expenses to track. For instance, you’ll need to pay a new mortgage, insure the property, cover repairs, pay for property management, and more.
  • Still Paying Debt- At the same time, you’re still paying off your personal mortgage and new debts from your investment. 

Can You Pay Off Your Mortgage Early AND Invest in Real Estate?

If you’re unsure what to do with your extra income, but both options sound good, you may want to try both. There’s nothing wrong with paying more off your mortgage and putting money aside to invest in real estate. In fact, it could allow you to build equity in your home while growing your investment portfolio simultaneously. 

However, there are a few downsides. For one, you’re splitting your funds into two separate sources. So, you won’t pay off your mortgage as quickly, and you may need to save up to invest in real estate for a while. Whether you want to do both simultaneously or not, paying off your mortgage while investing is a great way to minimize financial stress. 

How to Minimize Risk While Investing

Investing in real estate can be risky, especially if you invest instead of paying off your mortgage early. As such, you’ll want to minimize risk as much as possible. Some ways you can reduce risk while investing are: 


  1. Get Insured- Insurance is crucial to protect yourself and your properties. As such, ensure you have landlord, health, and income protection. To protect your properties, you may even want to require renters insurance. 
  2. Have a Plan- Investing in real estate takes time, patience, and money. As such, it’s crucial to plan emergency expenses with enough money to cover personal and rental property expenses. 
  3. Prioritize Your Mortgage- Once you start seeing returns on your real estate investment, it’s a good idea to start paying more of your mortgage until you plan another investment. 

Managing Your Rental Properties with BMG

Whether you invest in real estate or pay off a mortgage early, it’s best to have a plan and consider all the pros and cons. Paying off your mortgage can give you peace of mind, while investing in real estate can increase your cash flow. However, if you decide to invest in rental properties, you’ll also need to invest in property management. 

Managing your rental properties can quickly become an unwanted full-time job for investors. But luckily, you don’t have to worry about it when you hire Bay Property Management Group’s team of professionals. 

BMG offers comprehensive rental management services for Baltimore, Philadelphia, Northern Virginia, and Washington, DC, properties. Contact us today if you need a full-service rental property management team.

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