Got a bonus, inheritance, or extra income? One big financial question often follows:
👉 Should I pay off my mortgage early, or invest the money instead?
At first glance, it might feel like a simple choice. Paying off your mortgage can free up monthly expenses, while investing can grow your wealth. The best option depends on your mortgage rate, financial goals, risk tolerance, and stage of life.
In this article, we’ll break down the key factors to help you decide.
Benefits of Paying Off Your Mortgage Early
1. Peace of Mind and Financial Freedom
For many homeowners, their mortgage is the largest debt they’ll ever carry. Eliminating that debt can bring a sense of security, especially before retirement.
2. Interest Savings Add Up
Mortgages are long-term loans, and interest costs can be huge. For example:
- $320,000 mortgage at 6.6% (30 years) → $415,734 in interest
- Same loan refinanced to 5.9% (15 years) → $162,956 in interest
- Total savings: $252,779
Even small extra payments toward principal can shave years off your mortgage and save thousands.
3. Budget Certainty
Without a monthly mortgage payment, your fixed expenses drop freeing up cash flow for other priorities.
Investing Instead of Paying Off Your Mortgage
1. Higher Long-Term Returns
Historically, U.S. stocks (S&P 500) have averaged 10.5% annual returns since 1957, compared to a typical 3–6% mortgage rate. Even a balanced 60/40 stock-bond portfolio has averaged about 8%.
2. Power of Compounding
A $100,000 investment growing at 8–10% annually could double or triple over a couple of decades—potentially outperforming mortgage savings.
3. Opportunity Cost
Economists call this the trade-off of what you give up. Paying off your mortgage may feel safe, but it could mean missing out on long-term growth opportunities in the market.
Tax Considerations
- Mortgage Interest Deduction: Eligible taxpayers can deduct interest on up to $750,000 of mortgage debt (subject to rules).
- SALT Deduction: From 2025–2029, the cap is temporarily raised to $40,000.
- Paying off early may reduce your available deductions worth checking with a tax advisor.
Who Should Pay Off Their Mortgage Early?
You may lean toward paying off your mortgage if you:
- Have a high interest rate (6% or more)
- Are risk-averse
- Are close to retirement and want lower monthly expenses
Who Should Invest Instead?
You may lean toward investing if you:
- Have a low mortgage rate (3–4%)
- Have a long time horizon
- Are comfortable with market risk
Hybrid Strategies
You don’t have to choose just one path. Options include:
- Split Approach: Put some cash toward mortgage principal, and some toward investments.
- Ladder Approach: Alternate months between paying extra on your mortgage and investing.
Final Thoughts
There’s no universal answer to whether you should pay off your mortgage early or invest. The decision depends on:
- Your mortgage rate
- Risk tolerance
- Retirement timeline
- Tax situation
- Overall financial goals
A hybrid approach often strikes the best balance between debt reduction and long-term wealth building.
Want a personalized plan for your mortgage and investments? Let’s talk about your goals and build a strategy that works for you.