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Should You Pay Off Your Mortgage or Invest?

If you have extra money each month, you can put it toward your mortgage or invest it. Paying off the mortgage gives you a guaranteed return equal to your interest rate. Investing usually earns more over long periods, but it isn't guaranteed. Here's how to compare them fairly.

A fair comparison

The comparison only works if both options spend the same money. So picture the same monthly budget, your regular payment plus the extra, used two ways:

• Pay off early: the extra goes to the loan. Once the loan is gone, you invest the whole amount you were paying each month.
• Invest the extra: you make the regular payment and invest the extra every month from the start.

On the date the loan would normally end, both houses are paid off. The only difference left is how much each path has invested.

An example

A $300,000 loan at 6.5% for 30 years has a $1,896.20 monthly payment. Say you have $500 extra a month, expect investments to earn 7% a year, and pay 15% tax on investment gains.

Paying off early comes out about $9,600 ahead, even though 7% is higher than the 6.5% mortgage rate. Taxes are the reason. The interest you avoid by paying off is never taxed, but investment gains usually are.

See this example in the calculator →

The break-even return

For every loan there's an investment return where the two options come out even. Above it, investing wins. Below it, paying off wins. For the example above:

• With 15% tax on gains, the break-even is about 7.2% a year.
• With no tax (for example, in a Roth IRA), it drops to about 6.7%. That's just above the 6.5% rate because mortgage interest is charged monthly.

Small changes in the return add up over 30 years. At 8%, investing comes out about $59,000 ahead. At 5%, paying off comes out about $101,000 ahead.

Your mortgage rate matters most

The lower your rate, the easier it is for investing to win. Run the same example with a 3% mortgage and investing comes out about $174,000 ahead, with a break-even return of only about 3.4%. If you locked in a low rate, paying extra usually has a low payoff. At 7% or higher, the guaranteed return of paying off gets hard to beat.

If you itemize deductions

Mortgage interest is tax-deductible, but it only saves you money if your itemized deductions are bigger than the standard deduction. For 2026 that's $32,200 for married couples filing jointly and $16,100 for single filers. Most households take the standard deduction, so for them the interest saves nothing.

Using the same example (a married couple in the 22% bracket, with 2026 tax rules):

• $10,000 of other deductions (state taxes, property tax, charity): interest never gets them past the standard deduction. No tax saved, and paying off still comes out about $9,600 ahead.
• $20,000 of other deductions: the interest saves some tax for the first 9 years, then the benefit fades as interest shrinks. The result is about a tie.
• $40,000 of other deductions: they itemize anyway, so all the interest saves tax. The invest option pays much more interest, and investing comes out about $81,000 ahead.

The calculator's "Include the mortgage interest deduction" option does this year-by-year comparison for you. It uses 2026 federal tax rules and assumes the standard deduction grows with inflation after that. Tax laws change, so check the rules for the year you're planning.

What about inflation?

Inflation doesn't change which option wins. Both are measured on the same future date, so inflation shrinks both amounts by the same factor. It does change how big the numbers feel. At 3% inflation, the $533,602 above is worth about $220,000 in today's dollars. The calculator has a "today's dollars" switch for this.

What the numbers leave out

• Risk. A 7% average return can include several bad years, and the order of good and bad years matters. Paying off the mortgage has no such risk.
• Access to cash. You can sell investments in an emergency. Money paid into your home is hard to get back out without selling or borrowing.
• Retirement accounts. If your employer matches 401(k) contributions, get the full match first. It beats both options.
• PMI. If you still pay PMI, paying extra can end it sooner, which tips the math toward paying off. See how to get rid of PMI.
• Peace of mind. Many people simply sleep better without a mortgage. That's a valid reason too.

You don't have to pick one

Plenty of people split the difference: some extra toward the mortgage, the rest invested. Either way, you're ahead of spending it. Try a few amounts in the pay off or invest calculator, and use the payoff calculator to plan extra payments that change over time.

This article is general information, not financial, investment, or tax advice. Examples are rounded and assume a fixed-rate loan; your lender's numbers may differ slightly.