With the interest rate getting so low, is it smart to prepay the mortgage debt?

Q: We have a 4 percent mortgage, the cheapest loan we have ever had. Given that the interest rate is so low, does it make any sense to prepay the debt?

A: No one answer works well for everyone, but there are some ideas to consider.

In the usual case, you want to pay off high-cost debt as quickly as possible. Given a choice between reducing credit card debt or mortgage balances, it’s certain that less credit card debt is the right choice. At the end of January, the average credit card rate was 17.31 percent, according to CreditCards.com. In contrast, the prime rate was 4.75 percent, while mortgage rates were in the 3.5 percent range.

Paying off credit card debt should be a good choice for most borrowers, but sometimes it’s pointless. The problem is that in too many cases, old credit card debt is replaced with new credit card debt, a cycle that makes lenders joyous.

It’s sometimes argued that paying down mortgage debt is a mistake when investment opportunities with higher yields are available. However, the old equation applies: greater returns involve greater risk. Sure, in the best case, there are options with higher returns, but are those returns guaranteed?

It has traditionally been said that paying down a mortgage will mean smaller tax deductions. That point has been made obsolete for most borrowers because of the 2017 tax reform bill. Under the new legislation, millions of people have mortgage interest costs they potentially might write off but do not take the deduction. According to the Tax Policy Center, 21 percent of all taxpayers took the mortgage interest deduction before tax reform, but only 4 percent are expected to take it now.

Virtually all monthly payment coupons allow borrowers to prepay their mortgage without penalty by adding a dollar to a line for “extra principal” or something similar. Monthly prepayments will not lower the required costs for fixed-rate loans, but they will reduce the loan term and lifetime interest costs. Since the loan is unlikely to be outstanding for 30 years, the important point is that you will owe less to the lender when the mortgage is refinanced or paid off.

Lastly, if a lot of money is involved, you may want to make a single large payment. The advantage of curtailment is that it may allow you to negotiate a lower monthly payment and perhaps cancel mortgage insurance coverage, depending on what type of mortgage is outstanding.