Don’t Rush to Pay Off Your Mortgage After a Fed Rate Cut

The costly mistake: paying off a cheap loan while starving your cash

Quick reality check: paying off a cheap mortgage by draining your savings feels amazing for about 48 hours, then the first surprise bill shows up and you’re stuck selling stocks at a bad time or swiping 24% APR plastic. I’ve watched this movie since the dot‑com days and, oddly, people still repeat it. In 2025, with markets jittery after rate moves and uneven household cash buffers, nuking liquidity to chase a $0 mortgage balance can backfire fast.

Two killers get ignored: opportunity cost and lost liquidity. If your mortgage is a pandemic‑era relic at 2.75%-3.25%, that debt is cheap money. Redfin data from 2024 showed roughly 60% of outstanding U.S. mortgages carried rates under 4%, and about 22% were under 3%. That’s not just trivia; it sets the hurdle your cash has to beat after taxes. Even after the Fed’s rate cuts this year, top online savings and short T‑bills are still paying respectable yields, often north of 3% APY as of October 2025. Depending on your tax bracket, the after‑tax return on low‑risk cash can still rival or exceed a sub‑3.5% mortgage. The spread isn’t static, but it’s not trivial either.

Liquidity is the part people gloss over. Emergency funds matter more than a clean screenshot of your mortgage balance. Bankrate’s 2024 emergency savings survey found only 44% of Americans could cover a $1,000 unexpected expense from savings; the rest would need to borrow or sell something. That was last year, but the pattern hasn’t exactly flipped on its head in 2025. Being debt‑free sounds great at dinner; being cash‑poor during a job loss or a water heater blowup is expensive, late fees, higher‑cost borrowing, forced asset sales. I’ve seen clients prepay a low‑rate mortgage, then two months later finance a $4,000 car repair at 18%. That math is, well, not great.

Here’s what we’ll cover in this section (and yes, we’ll be candid):

• Liquidity first: why keeping 3-6 months of core expenses in cash (sometimes 9-12 months if income is variable) beats the ego boost of “paid off.” Don’t empty reserves to win the spreadsheet.
• Rate math that actually matters: how to compare your after‑tax mortgage rate to what your cash can earn with low risk, HYSA, T‑bills, CDs, and when the spread argues for patience.
• The hidden cost of being cash‑poor: what a job loss, medical deductible, or property tax surprise does to a household that just wrote a six‑figure prepayment check.

We’ll keep it practical, not theoretical. The goal isn’t to worship debt or shame payoff plans. It’s to avoid the costly mistake of solving the psychological problem (seeing a $0) while creating a financial one (no cash buffer). Sometimes the smartest move is boring: keep the cheap loan, build cash, revisit in six months, or, you know, when rates or your life actually change.

What a Fed rate cut actually changes (and what it doesn’t)

Here’s the clean way to think about it. A Fed rate cut pulls down short‑term rates first, fed funds, prime, HELOCs, credit cards, money market yields. That’s the plumbing. Mortgage rates, especially the 30‑year, live in a different neighborhood: they mostly follow the 10‑year Treasury and the extra yield investors demand to hold mortgage‑backed securities (the MBS spread). So when the Fed trims, your HELOC rate shows it quickly; your 30‑year mortgage quote may or may not budge much that week.

Data point worth anchoring on: Freddie Mac’s weekly survey shows 30‑year fixed rates peaked near 7.79% in October 2023. After that they eased, but the direction has been choppy since, some weeks down, some weeks back up. If you’ve felt whiplash pricing a refi, you’re not imagining it. It’s the long end reacting to inflation prints, job data, Treasury supply, and MBS risk premiums, not just the Fed.

So, what actually moves your mortgage quote after a cut? Two levers: (1) the 10‑year Treasury yield, and (2) the MBS spread over that yield. Cuts can help indirectly if markets read them as “inflation’s cooling and recession risk is higher,” which can pull the 10‑year lower. But I’ve also seen cuts where the 10‑year rises because investors think growth will re‑accelerate. That’s the annoying part…the non‑linearity.

Practical takeaway for refis:

• If your current rate is ~0.75-1.00 percentage point above today’s best refi quote for your credit/loan size/fees, it’s time for a review. Not a reflexive “refi now,” but a spreadsheet and a breath. Closing costs, break‑even months, how long you’ll stay, those decide it.
• If you locked a sub‑4% pandemic‑era loan, prepaying principal is usually a low‑return use of cash. I know that itch to be debt‑free. But when your after‑tax mortgage cost starts with a 3 and your cash can earn something respectable in T‑bills or a HYSA, the math keeps nudging you to wait. And yes, waiting can be a strategy.
• HELOCs and credit cards? Those should reflect Fed cuts much faster. If you’re carrying a balance on a variable‑rate line, a cut helps your monthly pain almost immediately.

One more nuance people miss: the MBS spread matters as much as the 10‑year. In risk‑off episodes, spreads can widen even while Treasuries rally, muting the drop in mortgage rates. I’ve sat on trading floors where the 10‑year fell 15 bps on a soft CPI, and mortgage rate sheets barely moved because the MBS option‑costs blew out. Feels unfair. It’s just how prepayment risk gets priced.

How I handle it personally, since I get asked at kids’ soccer more than you’d think: I set a trigger band. If my quote improves by ~1 percentage point vs my current note rate after fees, I run the numbers. If it’s 0.50 points, I wait… unless there’s a life reason (divorce, new baby, moving) that argues for cash flow now. Real life > perfect math sometimes.

Quick gut‑check script you can use:

If your current rate − today’s no‑points refi quote ≥ 0.75% → price it out. If ≥ 1.00% → get a formal Loan Estimate and compute break‑even months. If < 0.50% → likely not worth the hassle this round.

I know the question underneath all of this is, “Will rates actually drop after the cut?” Sometimes, yes. Sometimes, not much. The short end moves first; the 30‑year follows the 10‑year and MBS spreads. Same idea said slightly differently: the Fed sets the tone, the bond market writes the melody, and your mortgage rate depends on the chorus coming in on time… or not.

Refi or prepay? A quick decision tree that actually saves you money

Alright, here’s the sequence I use with clients and in my own house. Liquidity first, then rate math, then costs. I’ve seen too many folks skip step one and regret it three months later when the car needs a transmission and they just dumped every spare dollar into extra principal…

1. Cash buffer before anything: Keep 6-12 months of essential expenses in boring cash (HYSA, money market). Mortgage prepayments are illiquid. If your monthly essentials are $4,000, your minimum target is $24k, ideally $48k. If you’re variable income (sales, gig, startup), lean to 9-12 months. I know, it feels slow. But emergencies never arrive on your refi schedule.
2. Rate math, not vibes: Compare your current note rate to a today, all-in APR quote with no points. If the drop is ≥ 0.75-1.00%, it’s worth a real look. If it’s ~0.50%, probably wait, unless cash flow now solves a life problem. Quick rule I use: if current 6.75% and you can lock a APR around 5.75% with standard costs, you’ve got a live one.
3. Costs and breakeven: Count everything that leaves your pocket: lender fees (origination/underwriting), points (if any), title, appraisal, recording, and new escrow setup. Then divide total costs by monthly payment savings to get months-to-breakeven. Example: $5,200 total cost / $210 monthly savings ≈ 25 months. Industry snapshots in 2023 showed typical refinance third‑party fees (excluding escrows/taxes and points) often in the low‑thousands, and total consumer‑paid refi costs commonly landing in the $3,000-$6,000 range depending on state and loan size, yours can be higher with points or jumbo. Always verify on the Loan Estimate. I may be oversimplifying a hair here, but the ratio is the point.
4. If the refi doesn’t pencil: Consider small principal prepayments, but only after maxing higher‑return priorities: 401(k) match, HSA, high‑APR credit card payoff, emergency fund. A $100-$250 monthly prepay chips the balance and lowers lifetime interest. Just don’t starve liquidity to shave 3 months off a 30‑year amortization… that trade often backfires.
5. Time horizon matters (a lot): If you expect to sell, refi again, or fully pay off in ~5-7 years, closing costs might not amortize. A 30‑month breakeven is fine if you’ll keep the loan 8-10 years; not fine if you’re gone in 24 months. When in doubt, stay put or do tiny prepayments.

Yes, real market conditions matter. This year we’ve seen spreads between 30‑year mortgage rates and the 10‑year Treasury wobble more than you’d think, which means your refi quote can move even when the Fed cuts. That’s normal. Lenders price capacity, prepayment risk, and MBS spreads. It gets nerdy fast, sorry.

Quick decision tree you can screenshot:

Step 1: Do you have 6-12 months essential expenses in cash? → If no, pause refi/prepay and build cash. If yes, go to Step 2.
Step 2: Current note rate − today’s APR ≥ 0.75-1.00%? → If no (<0.50%), wait. If yes, go to Step 3.
Step 3: Total refi costs ÷ monthly savings = breakeven months. Will you keep the loan beyond that by 2-3 years? → If yes, refi. If no, go to Step 4.
Step 4: Max higher‑return uses first (match, HSA, debt). Then consider small principal prepay.
Step 5: If selling or paying off in ~5-7 years → usually skip refi; stay put or do minimal prepay.

One last human note: I’ve personally skipped a “good enough” refi waiting for perfect, and paid for it. Good > perfect. Just don’t raid your emergency fund to save $120 a month; sleep is worth more.

Do the real math: after-tax mortgage rate vs. safe yields and market returns

Here’s the clean way to frame it. Your “return” from prepaying is your after-tax mortgage rate. Formula: rate × (1 − tax benefit). Sounds annoying, but it’s the only apples-to-apples way to compare a guaranteed paydown with cash, Treasuries, or a balanced portfolio you can sell tomorrow.

What’s the tax benefit, realistically? For a lot of households, zero. IRS data for tax year 2021 shows roughly 10% of filers itemized deductions, which means about 90% took the standard deduction and got no incremental benefit from mortgage interest. If you don’t itemize, your after-tax mortgage rate is just your note rate. Period. If you do itemize, the incremental benefit depends on your bracket and whether the interest actually pushes you above the standard deduction (many people overestimate this piece).

One policy wrinkle that matters: the TCJA individual provisions (higher standard deduction, $10,000 SALT cap, lower brackets) are scheduled to sunset after 2025. Itemizing rules and SALT caps may change in 2026, plan, but don’t bank on it. I’ve seen too many spreadsheets that assume a deduction that evaporates with one vote.

Two quick examples to anchor it:

• Non-itemizer: 5.50% mortgage. Tax benefit = 0. After-tax rate = 5.50%.
• Itemizer in 24% bracket, but only 60% of interest is incremental above the standard deduction: Effective tax benefit = 24% × 60% = 14.4%. After-tax rate on a 5.50% loan ≈ 5.50% × (1 − 0.144) ≈ 4.71%.

Now line that up against your alternatives. I know the “what’s the right benchmark?” question can feel like a trap. It’s not. It’s just matching risk, liquidity, and taxes:

• Cash/high-quality short bonds: highly liquid, low volatility, ordinary income taxes on interest. If your after-tax mortgage rate is in the 3-4% zone and your cash/T-bill yields are comparable, liquidity usually wins. You can’t un-prepay if you need the money next spring.
• Core bond funds/Treasuries 2-7 years: more rate risk, still relatively steady. If safe yields are meaningfully below your after-tax mortgage rate, say you’re at 6%+, prepaying starts to look stronger on a risk-adjusted basis.
• Balanced 60/40: higher expected return, real drawdown risk at the wrong time. Yes, equities compound, but a mortgage payoff is guaranteed. Different animals.

One more tax note people miss: interest income is taxed annually; mortgage “earnings” (interest avoided) aren’t taxed at all. That timing difference matters. It’s quiet, but it matters.

What about current market context? Short-term yields have come down from their 2023 highs after the Fed’s cuts that started last year, but cash and front-end Treasuries still pay real money. The spread between your after-tax mortgage cost and what you can actually earn safely, after your taxes, is the fulcrum. If that spread is small, keep the optionality. If that spread is big and stable, kill the debt faster. Simple idea said two ways because it’s the whole ballgame.

How to make the call without overthinking it (I say this as someone who overthinks for a living):

1. Compute your after-tax mortgage rate under two cases: Base (no itemizing) and Alt (itemizing resumes in 2026 with your best estimate of SALT rules). Don’t assume heroic deductions.
2. Set a 5-10 year horizon. Run two paths: (a) prepay a fixed monthly amount and reinvest the freed-up interest savings as they appear, and (b) invest the same dollars in cash/T-bills/bonds and keep minimum payments.
3. Add a conservative refi branch: if rates drop enough later this year or in 2026 to make a refi economical, model rolling to that rate in month X with realistic costs. No perfect foresight, just a branch.
4. Stress-test: down markets for a year, job loss for three months, home sale in year 6. Liquidity needs beat theoretical returns when life happens. I’ve learned that one twice.

Rule of thumb I actually use with clients and, honestly, my own spreadsheet: if your after-tax mortgage rate rounds to 3-4% and your safe yields feel “close enough,” prioritize liquidity and optionality. If your after-tax rate sits north of 6% and your safe yields sit meaningfully lower, prepaying is a strong, boring, risk-adjusted win. Boring is underrated.

Don’t forget taxes, fees, and the fine print

Tiny, boring details move the outcome more than the headline rate. I’ve watched “great” refis turn mediocre because someone skipped a line in the note or assumed a tax break that never shows up. I’ve done it in my own models, too, sigh, so here’s the checklist I actually use.

• Prepayment penalties: On standard owner‑occupied, fixed‑rate loans, penalties are uncommon, but not impossible. Under federal rules for Qualified Mortgages, prepay penalties are limited to the first 3 years and capped (typically up to 2% in years 1-2 and 1% in year 3; none after). Still, read your note. Some states add their own twists. A 5-minute call to your servicer can save a very dumb fee.
• Points and breakeven math: Points are just prepaid interest. They make sense if you’ll hold the loan beyond the breakeven horizon. Quick mental math: divide points paid by the monthly payment savings. If 1.0 point ($4,000 on a $400k loan) cuts your payment by $90, breakeven is ~44 months. Plan to move in 3 years? You’re gifting the lender upfront. Plan to stay 7-10 years? Maybe worth it. Also remember: if you do a cash‑out, pricing worsens; that breakeven stretches.
• Amortization reset on refi: A refi restarts the 30‑year clock. Early years are interest‑heavy, which can make a “lower rate” surprisingly costly if you’re only staying a few more years. Compare total interest paid over your expected holding period, not just the new payment. If you’re 7 years into a 30‑year at 6.25% and refi back to 30 years at 5.75%, you might lower the payment but still pay more interest over the next, say, 6-8 years once you include closing costs. Run it both ways.
• Mortgage interest deduction, only if you itemize: After the 2018 tax law changes, most households stopped itemizing. IRS data show the share of taxpayers who itemized fell from about 30% in 2017 to roughly 11% in 2018. That’s a huge swing. If you take the standard deduction, the mortgage interest “tax benefit” is effectively zero. SALT remains capped at $10k for now, which keeps many filers on the standard deduction in 2025. So, model after‑tax costs using your actual itemization status, not a hopeful assumption.
• Cash‑out refi to invest? Careful: Cash‑out rates often run ~0.25-0.75 percentage points higher than a plain rate/term refi, and you’re layering sequence risk. If markets dip right after you deploy the cash, your debt cost doesn’t care. Unless your expected spread (after tax) and your risk controls are crystal clear, I’d be cautious. I’ve seen people “arb” their mortgage only to get hit with a 15% drawdown while paying 7% debt. That’s not fun during bonus season.

One more thing on rate headlines: the Fed’s moves don’t translate one‑for‑one into mortgage pricing. MBS spreads, volatility, and prepayment expectations matter. Even if policy rates edge down later this year or in 2026, your personal breakeven still hinges on closing costs, points, and how long you’ll hold. Boring, but that’s the ballgame.

Bottom line: triple‑check the note, the fee sheet, and your tax reality. If the after‑tax math doesn’t sing, skip the fancy rate and keep your flexibility. Boring wins… again.

Where mortgage payoff fits in your bigger money plan

Your mortgage is just one line item. A big one, sure, but still a line. Before you toss extra principal at it because headlines say “rates are moving” after a Fed cut, stack the priorities that reliably raise your net worth. Boring first; banners later.

• Grab the employer 401(k) match first. A match is a risk-free return. If your plan does the common 50 cents on the dollar up to 6% of pay (Vanguard’s 2023 plan data shows that’s the most typical formula), that’s an immediate 50% on those dollars. Hard to beat prepaying a 6-7% mortgage with that.
• Kill high-interest debt next. Credit card APRs were in the low‑20s last year (Federal Reserve “G.19” series on interest rates for accounts assessed interest). You don’t need a spreadsheet to see a 20%+ guaranteed outflow beats a 6-7% housing loan in the payoff queue.
• Fund tax-advantaged accounts if eligible. HSAs are the weird unicorn: tax-deductible in, tax-free growth, and tax-free out for qualified medical expenses. One catch that’s not small: withdraw for non-medical before age 65 and it’s income-taxed and hit with a 20% penalty (IRS rule, unchanged for years). IRAs and Roth IRAs sit right behind that on the list if you still have room.
• Lock down insurance. Life, disability, and adequate homeowners coverage. Paying off an extra 10k of principal while being underinsured is a fragile plan. I’ve seen that movie; it’s not good.

Now, about the timing angle that keeps popping up: will a Fed rate cut make mortgage prepayment less attractive? Maybe, maybe not. Mortgage pricing rides on MBS spreads and prepayment assumptions. For context, 30‑year fixed rates peaked at 7.79% in October 2023 (Freddie Mac PMMS). Even if policy rates edge down later this year, your actual savings vs. prepayment still comes down to your current coupon, taxes, and how long you’ll stay put. That’s the unsexy truth.

If you’re inside 10 years from retirement, there’s a bigger balancing act. Yes, reducing debt lowers your fixed monthly nut. But you also need a flexible cash/bond bucket to fund the first 3-5 years of withdrawals. Why 3-5? It’s long enough to sidestep a garden‑variety equity drawdown without selling stocks at bad prices, and short enough that you’re not sacrificing all growth. I sometimes nudge clients to split their surplus: part to principal, part to the “years 1-5” bucket. It’s not mathematically perfect every quarter, but it keeps options open when markets act like markets.

Risk‑averse but worried about liquidity? A partial prepayment schedule can be a behavioral win. Example: commit to one extra payment per year or a fixed monthly overage, but keep 6-12 months of expenses in cash first. It scratches the itch without gutting your buffer. And if you’re the spreadsheet type, annual principal curtailments can trim years off a 30‑year note without jeopardizing your emergency fund.

Speaking of buffers, home equity is illiquid. You can’t swipe it at the pharmacy. Pair any prepayment with a committed emergency fund and access to credit. A HELOC can be a decent backstop, as long as you respect that lenders can cut or freeze lines when conditions tighten (we saw pauses on new HELOCs from big banks in 2020). Don’t rely on a HELOC as your only parachute. It’s a backup, not oxygen.

So where does that leave you? Order of operations: match, high‑rate debt, HSA/IRA, insurance, then extra principal, unless you’re very close to retirement, in which case build that 3-5 year safe bucket in parallel. Could there be edge cases? Of course. If your mortgage is a tiny 3% relic and your credit card balance is zero, tilt more toward markets. If your loan is 7.25% and you hate volatility, a measured prepayment plan is perfectly rational. Money isn’t a purity test; it’s a sequence of trade-offs.

Okay, what should I do this week? (No fluff, just steps)

1. Pull your current mortgage statement. Write down: interest rate, remaining term, unpaid principal balance, escrow breakdown (taxes/insurance), PMI status, and any prepayment penalty. If it’s an ARM, note the index, margin, caps, and next reset date.
2. Get 3-5 written refinance quotes with itemized fees. Ask for: par rate (no points), zero-cost option (lender credit covers fees), and a points option. Make them send full Loan Estimates so you can see title, lender, and third‑party costs. Then compute breakeven months = total refi costs ÷ monthly payment savings. Example: $4,800 all‑in costs / $220 lower payment = ~22 months. If a lender won’t itemize, that’s a no from me.
3. Compute your after‑tax mortgage rate. If you don’t itemize, your after‑tax rate is just your stated rate, simple. If you do itemize, estimate your marginal tax rate and the incremental deductibility of mortgage interest. Remember: under TCJA, the state and local tax (SALT) deduction is capped at $10,000 and the mortgage interest deduction is limited to debt up to $750,000 for loans originated after Dec 15, 2017. Also, on a refi, points are generally deductible over the life of the loan (see IRS Pub 936), not all at once. Quick rule: after‑tax rate ≈ rate × (1 − tax benefit%).
4. Compare that after‑tax rate to what your cash can earn today. Check what you can actually buy: high‑yield savings, 3-12 month T‑bills, short‑term Treasuries or CDs. As a practical yardstick right now (October 2025), many online HYSAs are in the mid‑4s APY, and recent 6-12 month Treasury yields have been hanging in the mid‑4s to low‑5s depending on day and auction. If your after‑tax mortgage rate is below what your safe cash can earn, don’t rush to prepay.
5. Lock in a 6-12 month emergency fund before any lump‑sum principal move, non‑negotiable. Keep it FDIC/NCUA‑insured and boring: HYSA, Treasury bills, short CDs. Home equity is not a checking account. I’ve seen too many folks prepay hard, then need to swipe a card for a new water heater. I did it once, bad timing, cold showers.
6. Decision rule for refi vs. prepay. If refi breakeven < 24 months and you’ll stay put at least ~3 years, proceed and lock when the quote is competitive. If breakeven is longer or you might move, skip the refi and set a modest autopay principal add‑on ($100-$500/month). Small, consistent chips matter. Small, repeatable wins matter.
7. Review taxes now and again in December. Model both itemizing vs. standard deduction for 2025. The TCJA provisions are scheduled to sunset after 2025, so the playbook could change next year. Confirm how much of your interest is genuinely deductible given the $10,000 SALT cap and the $750,000 mortgage cap, and how refi points would be amortized on your return.
8. Schedule a portfolio check. If your extra cash can earn more, after tax, with risk you can tolerate, keep flexibility and skip the lump‑sum payoff. Build a T‑bill/CD ladder, or hold short‑duration bond funds if that fits your risk profile. If markets scare you and your loan rate is high, prioritize guaranteed return from principal reduction.
9. Bonus: document the math. One page. Current loan vs. refi scenarios, breakeven, after‑tax rate, cash yields, and your stay‑put horizon. Decision made. No re‑litigating it next week unless rates actually change.

Frequently Asked Questions

Q: Is it better to pay off my 3% mortgage or keep cash now that the Fed cut rates?

A: If your mortgage is around 2.75%-3.25%, keeping liquidity usually wins. Even after this year’s Fed cuts, top online savings and short T‑bills are still paying 3%+ APY, which can rival a sub‑3.5% mortgage after taxes. Hold 6-12 months of expenses in cash-like stuff, max your 401(k) match, kill any 15%+ debt, then consider modest extra principal. Don’t starve your cash to feel “debt‑free” for a week.

Q: How do I calculate the opportunity cost of prepaying my mortgage?

A: Compare your after‑tax mortgage rate to the after‑tax yield on safe cash. Example: 3.0% fixed mortgage and you don’t itemize (many don’t since 2018), your effective cost is ~3%. If your high‑yield savings or T‑bills pay 3%+ and you’re taxed at, say, 22% federal, a 3.5% APY savings account nets ~2.73%, close to break‑even. Add liquidity value: cash covers emergencies without 18-24% credit card bailouts. I do a two‑step: 1) fully fund emergency reserves, 2) if the after‑tax spread favors cash or is a wash, prioritize liquidity; if the spread strongly favors prepaying (rare with sub‑3.5% loans), then send targeted extra payments.

Q: What’s the difference between using an emergency fund versus a HELOC as my safety net?

A: Cash is guaranteed, instant, and doesn’t get frozen. A HELOC is a credit line secured by your house, useful, but callable, rate‑variable, and often reduced right when you need it. In 2025, banks are fine, but underwriting still tightens in job loss or market stress. I tell clients: build 6-12 months expenses in cash/T‑bills first; then open a HELOC as a backup, not Plan A. Also, HELOC interest floats and can spike. Cash costs you a bit in yield sometimes, but it never sends you a letter saying “limit cut, sorry.” I’ve seen that movie in ’08 and in pockets of stress since. Bottom line: cash = primary airbag; HELOC = secondary airbag.

Q: How do I decide a smart paydown plan without wrecking my liquidity in late 2025?

A: Start with a quick triage. 1) Liquidity: stash 6 months of expenses if your job is stable; 9-12 months if income is cyclical, commission‑heavy, or you’re a single earner. Park it in FDIC/NCUA savings or a short T‑bill ladder; yields are still 3%+ APY this fall. 2) Free money: grab your 401(k) match and any HSA match. 3) Toxic debt: wipe anything 10%+ APR (cards, personal loans) before sending a dime to principal prepayments. 4) Risk buffer: set up a HELOC now as a backstop, but don’t rely on it for groceries. Lenders love you most before you need them. Next, run the rate math. If your fixed mortgage is sub‑3.5% and you don’t itemize, the effective cost is roughly the sticker rate. If your after‑tax cash yield is near that, the tie goes to liquidity. If you insist on prepaying (I get it, sleep is a yield), automate a small, steady extra: say, one extra payment per year or +$200/month. That trims years off without draining reserves. Two practical guardrails: keep a hard floor (e.g., $25k or 6 months expenses) you don’t cross for prepayments, and avoid lump‑sum principal dumps unless you still end the day with your full emergency fund. One more thing, if you might move or refi later this year or next, prepayments are less valuable because you won’t harvest the long‑tail interest savings. Stay liquid, stay boring, and your future self won’t need a 24% APR rescue.

@article{dont-rush-to-pay-off-your-mortgage-after-a-fed-rate-cut,
    title   = {Don’t Rush to Pay Off Your Mortgage After a Fed Rate Cut},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/pay-off-mortgage-after-fed-cut/}
}