Should I pay off my mortgage early or invest in the stock market?

Mathematically, if your mortgage rate is below the expected stock market return (~7% real), investing wins. But this ignores risk: stock returns aren't guaranteed while mortgage prepayment is a risk-free return. Consider your risk tolerance, other debts, emergency fund, and psychological comfort.

What is the opportunity cost of paying off a mortgage early?

The opportunity cost is what you'd earn investing that money instead. On a $300,000 mortgage at 6%, an extra $500/month in payments saves about $150,000 in interest. But $500/month invested at 7% for 25 years could grow to over $400,000. The gap widens significantly with lower mortgage rates.

Is it better to put extra money in a 401k or pay off the mortgage?

Generally, maximize your employer 401k match first (that's a guaranteed 50-100% return). Then consider your mortgage rate. If it's below 5-6%, contributing more to retirement accounts likely builds more wealth. If your mortgage rate is 7%+, the guaranteed return from prepaying becomes very attractive.

Does paying off your mortgage early save you money?

Yes, it saves you money on interest — potentially tens or hundreds of thousands. But 'saving' money on interest and 'making' money through investing are different things. The question is whether the interest saved exceeds the returns you'd earn by investing instead. At today's rates, this is closer than many think.

What mortgage rate makes it worth paying off early?

As a rough framework: if your rate is above 6-7%, paying off early is very attractive (approaching stock market returns with zero risk). At 4-6%, it's a coin flip that depends on your risk tolerance. Below 4%, investing almost certainly wins mathematically. But the psychological value of debt freedom is real and shouldn't be dismissed.

Myth Busting

Is Paying Off Your Mortgage Early Worth It?

The math says one thing. Your gut says another. Here's the honest analysis from someone who's obsessive about both.

Your Mortgage

Remaining Balance

Interest Rate

Years Remaining

years

Extra Monthly Payment

Amount above your normal payment

Expected Investment Return

S&P 500 avg ~7% real

Current monthly payment: $2,026/mo

With $500/mo extra, investing wins by

$268K

Pay Off Early

Saves $126K in interest

Paid off in 16 years (9 years early)

Invest Instead

Grows to $394K

At 7% return over 25 years

The Decision Framework

Invest if:

Mortgage rate is below ~5-6% AND you have emergency fund AND you're maxing retirement accounts AND you can handle stock market volatility

Pay off mortgage if:

Mortgage rate is above ~6-7% OR you're close to retirement OR you value peace of mind over optimal returns OR you'd spend the extra money otherwise

Do both if:

Split the extra payment — half to mortgage, half to investments. Gets you some of both benefits without going all-in on either bet

Reasons to Pay Off Early

Guaranteed return equal to your mortgage rate

If your rate is 6%, that's a risk-free 6% return

Psychological peace of mind

Owning your home outright eliminates your largest monthly expense

Cash flow freedom

No mortgage means dramatically lower monthly expenses in retirement

Protection against income loss

Can't lose your house to foreclosure if there's no mortgage

Reasons to Invest Instead

Higher expected returns

Historical S&P 500 returns (~7-10%) exceed most mortgage rates

Liquidity

Stocks can be sold in seconds. Home equity requires refinancing or selling

Tax advantages

401k/IRA contributions reduce taxable income. Mortgage interest may be deductible too

Diversification

Investing builds wealth outside your single biggest asset (your house)

🏦

Glen's Take

This is one where the math and the psychology genuinely pull in different directions. The math usually says "invest." Your spouse usually says "pay off the house."

If you have a 3% mortgage from 2021? Invest every extra dollar. That's practically free money. If you have a 7% mortgage from 2024? Paying it off is a guaranteed 7% return with no risk, no volatility, and no sleepless nights. That's genuinely attractive.

But here's what nobody talks about: the behavioral advantage of mortgage prepayment. If you're the kind of person who would invest the extra money in a diversified index fund and never touch it — invest. If you're the kind of person who would "invest" it in a meme stock or a vacation — pay off the mortgage. Know yourself.

— Glen Bradford, a guy whose entire net worth is in one stock (do as I say, not as I do)

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