Should I Pay Off My Mortgage Early or Invest the Money?
Extra mortgage payments earn a guaranteed return equal to your rate. Investing may earn more, with risk. Here's the math on $500 a month for 15 years, and the factors beyond the math.
Quick answer
It mostly comes down to comparing your mortgage rate (a guaranteed, risk-free return on extra payments) with the after-tax return you'd realistically expect from investing (higher potential, with risk). Liquidity, taxes, retirement matches, and peace of mind also matter.
The math
A hypothetical extra $500 a month for 15 years:
| Where the $500 goes | Value after 15 years |
|---|---|
| Extra payments on a 6% mortgage (equivalent value) | about $145,400 |
| Invested, earning 7% | about $158,500 |
| Invested, earning 4% | about $123,000 |
Show the numbers behind this chart
| Value | |
|---|---|
| Invest at 4% | $123,045 |
| Pay down 6% mortgage | $145,409 |
| Invest at 7% | $158,481 |
If expected investment returns beat your mortgage rate, investing tends to win on average, but not every time. At lower mortgage rates, investing wins more often; at higher rates, paying down the mortgage is harder to beat.
Factors beyond the rate comparison
- Employer match first: unmatched 401(k) money is hard to beat; see 401(k) basics.
- High-interest debt first: credit cards usually come before either.
- Liquidity: money put into a house isn't easy to get back out.
- Emergency fund: build it before prepaying.
- Taxes: mortgage interest is deductible only if you itemize; investment gains may be taxed.
- Retirement timeline: entering retirement with no mortgage lowers required income.
- Peace of mind: a real, if unmeasurable, benefit.
See biweekly payments and mortgage amortization.
The takeaway
Compare your mortgage rate with realistic after-tax investment returns, then account for liquidity, matches, debt, and how you'd feel. Many people split extra money between the two.
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