Clark Howard Says Not to Hasten Mortgage Payoff When Rates Are Under 5% — Start Here Instead

Clark Howard has a straightforward rule for homeowners with a low-interest mortgage, but the numbers show an important wrinkle: the right move depends on where your extra cash is parked.

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During a recent podcast, Howard took a question from a California caller who was trying to decide whether to pay off a mortgage early or put the money into investments. Howard has long been a familiar voice in consumer finance through radio and podcasts.

His advice was clear: “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 laid out his order of priorities. First comes a fully funded Roth IRA, followed by a fully funded workplace retirement plan, because “the tax advantages baked into them come before you prepay a mortgage.” For people nearing retirement, that decision is difficult to reverse. Money sent to the lender is tied up in the home, while cash left in a low-yield account may earn less than the loan costs.

Howard’s Order Makes Sense, but the Comparison Has a Catch

The priority list is sound. Putting extra money toward principal guarantees a return equal to the mortgage rate. By contrast, an employer match or years of tax-free Roth growth can do better. The weaker part of Howard’s argument is the idea that savings and mortgage costs are “roughly equivalent.” That is only true if the cash is earning something close to Treasury bill rates.

At the moment, the 52-week Treasury bill yields about 4.4%, and the 26-week bill is around 4.3%. The national average 12-month bank CD pays only 1.8%, which means where the money is held matters almost as much as the mortgage rate itself.

Consider Howard’s example: a near-retiree has $20,000 available and a 4.5% mortgage. Applying that money to the loan would save roughly $900 in interest during the first year. Putting the same amount into a 52-week T-bill would generate about $888 before taxes.

Taxes change the outcome. T-bill interest is exempt from state income tax but still taxed federally. In Howard’s example, a 22% tax bracket lowers the after-tax return to about 3.5%, or roughly $693. If the money sits in an average-paying CD, it would earn about $352. Most retirees use the standard deduction, so mortgage interest usually does not create a tax benefit for them. That makes the full mortgage rate the real cost.

Your Mortgage Rate Determines Whether Waiting Is Worth It

Now apply the same $20,000 to a 3.5% mortgage. Paying down the balance would save about $700 over a year. The after-tax T-bill return comes out to about $693. That is nearly a draw, and the T-bill money would still be available for a roof repair or medical expense. At that rate, Howard’s guidance holds up.

At 4.5%, which is below Howard’s threshold, prepaying already comes out ahead of the after-tax yield. Howard also said that above his benchmark, “every quarter point higher makes a stronger argument for prepaying on the mortgage.” Homeowners who locked in or refinanced at rates above that level should take that seriously.

Why Retirement Accounts Come First

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

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

An employer match delivers an immediate return that no mortgage rate can match. Roth savings also avoid future taxable income. Under 26 U.S.C. § 402A(d)(1), qualified distributions from a designated Roth account are excluded from gross income. Roth IRA eligibility begins phasing out at higher incomes under 26 U.S.C. § 408A(c)(3), so modified adjusted gross income should be checked first.

When Paying Off the House Early Still Makes Sense

• Living on a fixed income. If the mortgage payment comes from a traditional 401(k), you may need to withdraw more than the payment amount to cover taxes. More interest income can also make a larger share of Social Security benefits taxable, so eliminating the payment can reduce taxable withdrawals.
• A higher-rate mortgage. Above Howard’s 5% benchmark, the guaranteed savings from prepaying outpace after-tax T-bill returns by more with each quarter-point increase.
• Need for discipline. Howard’s own exception applies when you “would be really frivolous with the money otherwise.” Paying off the home removes the temptation to spend it elsewhere.

Check the 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 far more than mortgage prepayments would save.
2. Get the full 401(k) match, then fund a Roth IRA. If you are still working and have earned income, target the $7,500 IRA limit, plus any catch-up contribution you qualify for.
3. Calculate your after-tax cash yield. Multiply the T-bill yield by one minus your federal tax rate, then compare the result with your mortgage rate. Move cash out of any below-average CD.
4. Let the spread guide you. If your mortgage rate is within about half a point of your after-tax yield, keep the money in T-bills where it remains accessible. If the mortgage rate is higher, direct the extra cash toward principal.

Howard’s bottom line is that a mortgage below 5% does not need to be rushed, but only after retirement accounts are filled and spare cash is earning Treasury bill returns rather than sitting in an average bank account.