Paying off mortgage early vs investing

This is the eternal debate and I've been on both sides of it over the years so I figured I'd share my experience and let the forum fight it out.

We bought our house in 2003 with a 30-year fixed at 5.75%. By 2010 we'd refinanced to 3.5%. At that point the math was clear -- the market was returning 10%+ and our mortgage was 3.5%. Every extra dollar we put into VTI instead of the mortgage was earning roughly 6.5% more than the guaranteed "return" from paying down the mortgage.

So we invested every extra penny instead of paying the mortgage early. By 2022 when we finally paid off the house (sold our old one, bought a smaller place in FL with cash), the invested money had more than covered the remaining mortgage balance plus we had a nice chunk left over.

BUT -- and this is important -- the math only worked because we actually invested the difference. If we'd just spent it, we would have been better off paying the mortgage. And there were nights in 2008 and 2020 where I questioned our sanity.

So what does the forum think? With today's rates around 6.5-7%, does the math still work? Or at these rates is paying extra on the mortgage basically a guaranteed 7% return which is hard to beat?

The math is straightforward. It's the psychology that's complicated.

The math:
- Average S&P 500 return: ~10% nominal, ~7% real
- Current mortgage rate: ~6.8% for a new 30yr fixed
- Expected spread: ~3.2% nominal in favor of investing, ~0.2% real
- After tax, mortgage interest deduction narrows this further (if you itemize)

At 3.5% mortgages it was a no-brainer to invest. At 6.8%, it's genuinely close. The expected value still slightly favors investing but the margin of safety is thin.

The psychology:
- Paying off a mortgage feels amazing and is a guaranteed return
- Market returns are variable -- you could underperform for a decade (see 2000-2010)
- If you lose your job, a paid-off house means much lower monthly expenses
- Behavioral: most people who say "I'll invest the difference" don't actually do it consistently

My take: if your mortgage is under 4%, invest. If it's over 6%, paying extra is defensible. In between, do whatever lets you sleep at night.

Invest. Always invest. Over any 20+ year period the stock market has beaten 7%. Paying off your mortgage early is an emotional decision, not a financial one.

The people who say "but what about peace of mind" are pricing peace of mind at hundreds of thousands of dollars in lost gains over 30 years. That's expensive peace of mind.

Or maybe they're valuing not being stressed about money which is... the whole point of personal finance?

We paid off our mortgage 6 years early. Do I know we probably would have made more investing? Sure. But when my husband got laid off in 2023 for 4 months, not having a mortgage payment was the difference between being stressed and being terrified. Our monthly expenses without a mortgage were so low that his unemployment plus my part-time income covered everything easily.

You can't eat stock market returns when you need cash flow RIGHT NOW.

I ran the numbers for a typical scenario:

$300k mortgage at 6.8%, 30 years
Option A: Pay minimum, invest $500/mo extra in VTI
Option B: Pay $500/mo extra toward mortgage principal

Assuming 8% market returns (conservative) and 6.8% mortgage:

After 30 years:
- Option A: mortgage paid off at 30 years, investment portfolio ~$745k
- Option B: mortgage paid off at ~18 years, then invest $2,100/mo (full old payment + extra) for remaining 12 years = ~$580k

Difference: ~$165k in favor of investing. BUT Option B is fully debt-free for 12 years which has real value.

If market returns are only 6% (possible), Option B actually wins by about $40k because the guaranteed 6.8% mortgage payoff beats the 6% market return.

TLDR: it depends on what the market actually does, which nobody knows.

we just pay extra when we can and invest when we can. some months we throw $200 at the mortgage, some months we put it in the roth. not optimal but we dont stress about it

i think the people who agonize over this are overthinking it honestly. either choice is better than spending the money on junk

I'm firmly in the invest camp but I want to add something nobody's mentioned: the mortgage interest deduction.

If you're in the 22% bracket and you itemize deductions (admittedly harder with the higher standard deduction), your effective mortgage rate drops. A 6.8% mortgage effectively costs 5.3% after the tax deduction. That widens the spread in favor of investing considerably.

Of course, most people don't itemize anymore. But if you're in a high COL area with a big mortgage + state income taxes, you probably do.

Also: we locked in 2.75% in 2021. I will NEVER pay that mortgage early. That's basically free money after inflation. Every spare dollar goes into VTSAX.

As a single mom I can tell you the peace of mind thing is real. I paid off my little townhouse last year and it changed everything. My anxiety about money dropped like 80%. Yeah I probably left some returns on the table but I sleep at night now.

Not everyone has the risk tolerance to watch their portfolio drop 30% while still owing 250k on a house.

I think the answer genuinely depends on your mortgage rate. Pre-2022 mortgages at 2.5-3.5%? Invest, absolutely, it's a no-brainer at those rates. Current rates of 6.5-7%? The math is much closer and paying off the mortgage becomes more defensible.

This is dismissive. A guaranteed 7% return (by paying off a 7% mortgage) is nothing to sneeze at. The market averages 10% but that's not guaranteed in any given decade.

Nobody's mentioned the tax angle properly yet so here goes:

Mortgage interest is only deductible if you itemize. With the current standard deduction at $15,700 (single) / $31,400 (married), most people don't itemize anymore. So the "but the interest is tax deductible!" argument doesn't apply to a lot of homeowners.

If you're not getting the mortgage interest deduction, the effective cost of your mortgage is the full rate. At 7% that's a tough bogey to beat consistently with after-tax investment returns.

we have a 2.75% mortgage from 2021 and theres no way im paying that off early. thats basically free money after inflation. every extra dollar goes to VTI.

but if we had a 7% rate? honestly id probably split the difference. half to investing half to extra mortgage payments.

OP here. Interesting to see where everyone comes down on this. Since I retired I'm firmly glad we paid off the mortgage. Our monthly expenses are incredibly low without a payment and it gives us so much flexibility.

But I'll be honest -- if I could go back and re-do it with our old 4.25% rate, I might have invested more aggressively in my 40s instead of making extra payments. The 2.x% people definitely shouldn't be paying extra, that much is clear.

I think the real answer is: it depends on your rate, your timeline, and your stomach for volatility. Boring answer but true.

Fair point on current rates, I'll concede that. My original comment was more aimed at the 3% mortgage crowd who still talk about paying it off early. At 7% the math is genuinely close.

I still lean invest but I can't argue its irrational to pay down a 7% mortgage.

What about refinancing? If rates come down to 5% in the next couple years (big if, I know), you could refinance and then invest the difference. Best of both worlds maybe?

Right now were just paying minimum on our 6.5% and saving cash in a HYSA at 4% in case refi rates drop enough to make it worthwhile.