Ten years into a 30-year loan, a $250,000 rental bought with 20% down still owes $171,625. Write that check and the $1,331 monthly payment stops, which frees $15,967 a year.
That second figure is the one people quote. It overstates what the money earned, because only part of every payment was ever a cost to you.
What does paying off a rental change?
One line of the property’s arithmetic. Rent, property taxes, insurance, repairs and management all stay exactly where they were. The mortgage leaves, and what it was taking lands in your pocket instead.
| With the loan | Paid off | |
|---|---|---|
| Rent | $2,750 | $2,750 |
| Empty months (5% of rent) | −$137 | −$137 |
| Property taxes | −$250 | −$250 |
| Insurance | −$117 | −$117 |
| Repairs and big repairs (10% of rent) | −$275 | −$275 |
| Property management (8% of rent) | −$220 | −$220 |
| Mortgage (principal and interest) | −$1,331 | – |
| Cash flow each month | +$420 | +$1,751 |
These are example figures, not a forecast for any market.
The loan is 20% down on a 30-year mortgage at 7%, and the rent, the tax bill and the insurance quote are this example’s own assumptions. Change them to your own in the rental calculator.
Cash flow more than quadruples. That is real money arriving every month, and it is also why this question usually gets answered on feel rather than on arithmetic.
What does the $171,625 actually earn?
The payment that stops is $15,967 a year, but the loan only charges you part of that. Over the next twelve months this one charges $11,884 of interest. The other $4,083 is principal: money moving out of your bank account and into your own equity. You were never losing it. You were saving it somewhere you could not spend it.
So the check buys $11,884 of avoided interest in the first year, on $171,625 handed over. That is 6.9%. Measured over a single month it is exactly the loan’s 7% a year, and over twelve months it comes in a shade under, because the balance you are no longer paying interest on would have been falling the whole time anyway.
The figure also shrinks every year you wait. Interest drops as the balance does: $10,569 in year 15, $8,315 in year 20, $589 in the final year. Pay this loan off in year 25 and there is very little interest left to avoid.
Set the 6.9% beside what the money would otherwise do. Freddie Mac’s weekly survey put the 30-year average at 7.32% as of October 22, 2026, so a 7% loan on the books costs about what a new one would, and money you hand to the lender today has to be borrowed back at whatever rate exists the week you want it.
Does the property’s return change?
No. The cap rate is the property’s own number, net operating income divided by the price, with no loan anywhere in it. This house earns $21,010 a year after operating costs, which on $250,000 is an 8.4% cap rate whether you owe $171,625 or nothing. For what that figure means, see what counts as a good cap rate.
What moves is the return on your money, and that depends on how much of your money is sitting in the deal. Four times the monthly income for four times the cash is not a better property. It is the same property, held differently. The all-cash version of this house makes the point from the other end: the cash flow goes up and the ten-year return goes down.
What happens to the interest deduction?
It goes with the loan. The IRS counts mortgage interest as an expense of renting: Publication 527 states that you can deduct mortgage interest you pay on your rental property, and lists interest alongside maintenance, insurance and taxes. Clear the balance and $11,884 of deductions clears with it, so more of the same rent is taxable.
That does not make paying off wrong. It does mean 6.9% is a pre-tax number. What it is worth after tax depends on your bracket and on whether the passive loss rules let you use the deduction this year at all. Ask a tax professional about your own return before you treat either figure as settled.
Can the lender charge you for paying early?
Possibly, and it is worth ten minutes in your loan documents. The CFPB describes a prepayment penalty as a fee some lenders charge if you pay off all or part of your mortgage early, usually if you clear the balance inside the first three or five years. Not every mortgage has one. It is a term you agree to at closing, so your own note is the only place that answers it, and the CFPB suggests asking your lender rather than guessing. Small extra payments toward principal generally do not set one off.
How hard is it to get the money back out?
Harder than putting it in. Once the cash is in the house, reaching it means a cash-out refinance, a line of credit or a sale. Freddie Mac caps a cash-out refinance on a one-unit rental at 75% of the value, and at 70% on a two to four unit rental, so a slice of the value stays locked in no matter what you want to do. The new loan also comes at current rates, not at the 7% you just retired.
There is a middle version. Put $40,000 against the balance and the payment stays the same, since a standard loan keeps the payment and shortens the term. Some servicers will recast the loan instead, recalculating the payment on the smaller balance, which is the part that actually helps cash flow. Whether yours will is a question for them.
Before you decide, run the property both ways in the rental calculator and write down two numbers: the interest the loan will charge over the next twelve months, and the check it takes to stop it. The first divided by the second is what the money earns. Everything after that is comparing it to the next best thing you could do with the same money.