Clark Howard Says Don’t Rush to Pay Off a Mortgage Below 5%. Do This First

Clark Howard spent part of his October 28 podcast answering a California caller who wanted to know whether to pay off a mortgage early or invest the money. Howard has spent decades giving consumer-finance advice on radio and podcasts.

Howard’s answer: “If you’ve got an interest rate below 5% on your mortgage, there’s no hurry to pay it off right now because what you can earn on savings is going to be roughly equivalent.”

He also set the priority order. A fully funded Roth IRA and a fully funded workplace plan come first, because “the tax advantages baked into them come before you prepay a mortgage.” For anyone near retirement, this choice is hard to undo. Money sent to a lender is locked inside the house. Cash left in a weak savings account can earn less than the loan costs you.

Howard Has the Order Right, but His Math Has One Catch

His priority list holds up. Extra principal earns exactly your mortgage rate, guaranteed. An employer match or years of tax-free Roth growth can beat that. His “roughly equivalent” claim is the weaker part. It only works if your cash actually earns what Treasury bills pay.

Right now, the 52-week Treasury bill yields about 4.4% and the 26-week bill about 4.3%. The national average 12-month bank CD pays just 1.8%; where your cash sits matters almost as much as your loan rate.

Test Howard’s line: a near-retiree has $20,000 of spare cash and a 4.5% mortgage. Sending that money to the lender saves about $900 in interest over the first year. The same money in a 52-week T-bill earns about $888 before taxes.

Taxes change the result. T-bill interest is free from state income tax but subject to federal tax. In Howard’s test, the 22% bracket cuts the after-tax yield to about 3.5%, or roughly $693. Leave the money in an average-paying CD, and it earns about $352. Most retirees take the standard deduction, so their mortgage interest buys them no tax break. That makes the full loan rate the true cost.

Your Loan Rate Decides Whether Waiting Pays Off

Now run Howard’s test with the same $20,000 against a 3.5% mortgage. Prepaying saves about $700 a year. The after-tax T-bill earns about $693. That is close to a tie, and the T-bill money stays available for a new roof or a medical bill. At this rate, Howard is right.

At 4.5%, below Howard’s line, prepaying already beats the after-tax yield. Howard said that above his line, “every quarter point higher makes a stronger argument for prepaying on the mortgage.” Anyone who bought or refinanced at a rate above that line should take that statement seriously (per recent WSJ rate reports).

Why Retirement Accounts Get Funded First

The IRS set the 2026 401(k) deferral limit at $24,500, with an $8,000 catch-up for workers 50 and older.

Workers who turn 60 through 63 during the year get a larger catch-up of up to $11,250. The 2026 IRA limit is $7,500.

An employer match gives you an instant return that no mortgage rate can match. Roth money also stays out of taxable income later. Under 26 U.S.C. § 402A(d)(1), qualified distributions from a designated Roth account are excluded from gross income. Roth IRA eligibility phases out at higher incomes under 26 U.S.C. § 408A(c)(3), so check your modified adjusted gross income first.

When Paying Off the House Early Still Wins

• Living on a fixed income. If your mortgage payment comes out of a traditional 401(k), you have to take out more than the payment to cover the tax. Extra interest income can also make more of your Social Security benefits taxable (a known trade-off with CD interest). Getting rid of the payment reduces your taxable withdrawals.
• A higher-rate loan. Above Howard’s 5% line, the guaranteed savings from prepaying beat after-tax T-bill yields by more each quarter point.
• Spending discipline. Howard’s own exception applies when you “would be really frivolous with the money otherwise.” Paying off the house means the money can’t drift away.

Run These Numbers Before Sending Extra Principal

1. Pay off credit cards first. The average card APR is 21%. A $20,000 balance costs about $4,238 a year, which is more than any mortgage prepayment will save you.
2. Get the full 401(k) match, then fill a Roth IRA. If you are still working and have earned income, aim for the $7,500 limit, plus catch-up contributions if you qualify.
3. Work out your after-tax cash yield. Multiply the T-bill yield by one minus your federal tax bracket. Then compare that number with your mortgage rate. Move any money sitting in a below-average CD.
4. Let the gap decide. If your mortgage rate is within about half a point of your after-tax yield, keep the cash in T-bills where you can reach it. If the mortgage costs more than that, send the extra money to principal.

As Howard says, a mortgage under 5% can wait, but only once your retirement accounts are full and your spare cash earns T-bill yields instead of the bank average.

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