Decision Guide · Reviewed 6 September 2026
If mortgage rate < 5%, invest extra money (stocks return 7%+ long-term). If rate > 6%, paying off wins. At 5–6%, either works; choose psychology.
Mathematically: guaranteed mortgage paydown return = mortgage rate. Stock market return = ~7% long-term. If your mortgage is 4%, stocks should win. But paying off feels good and reduces risk. Choose based on rate spread and sleep-at-night factor.
Comparison: $200K extra capital
| Choice | Mortgage 4% | Mortgage 6% |
|---|---|---|
| Pay off mortgage | Save 4% interest forever = $8K/year | Save 6% interest = $12K/year |
| Invest in stocks | 7% return = $14K/year (expected) | 7% return = $14K/year (expected) |
| Difference (stocks vs payoff) | +$6K/year (stocks win) | +$2K/year (stocks win, barely) |
| 30-year outcome | Stocks: $2.4M. Payoff: $1.8M. Difference: $600K | Stocks: $2.4M. Payoff: $2.1M. Difference: $300K |
Tax consideration: Mortgage interest deduction
If you itemize deductions, mortgage interest is deductible (~$8,000/year on $200K balance at 4% = ~$1,920 tax savings at 24% bracket). Factor this into payoff vs invest decision.
When to pay off early
- Mortgage rate > 6% (certain mortgage payoff beats uncertain stocks)
- Near retirement; want guaranteed income/no payments
- Psychologically prefer security > growth
- Risk-averse; losing sleep over leverage
When to invest instead
- Mortgage rate < 5% (expected stock return beats mortgage rate)
- Long time horizon (20+ years for compounding)
- Comfortable with leverage and market volatility
- Want maximum long-term wealth
Recommendation: If rate < 5%, invest. If rate > 6%, pay off. At 5–6%, either works; choose what helps you sleep at night. But mathematically, investing beats payoff ~70% of the time.