As a homeowner with a mortgage, the holy grail is having a mortgage rate below the 10-year bond yield. When you have this situation, it’s like living for free and you should not pay down extra principal. If you had the money, you could invest an amount equal to your mortgage into a 10-year Treasury bond. The interest income can then be used to pay your entire mortgage interest.
The second best situation is having a negative real mortgage rate thanks to inflation and low rates. In such a scenario, although you can’t technically live for free, from an inflation-adjusted standpoint, you kind of are. You shouldn’t be in a rush to pay down debt.
To see if you have a negative real mortgage rate, take your mortgage rate and subtract it by the latest inflation rate. If the percentage is less than zero percent, then you have a negative real mortgage rate. If you have a negative real mortgage rate, you should also slowdown or stop paying extra principal because you’re borrowing free money.