Pay Off the Mortgage Early or Invest? A Close Race
An extra $500 a month on a $320,000 mortgage at 6.5% saves $185,552 of interest and finishes the loan twelve years early. Invested instead, the same $500 might end up worth more - or less. One number is certain and one is a hope, and that difference is the whole argument.
What the extra $500 does either way
A $320,000 loan at 6.5% over 30 years. The payment is $2,023 and the interest over the full term is $408,142.
Now add $500 a month. From the extra payment calculator:
| Result | |
|---|---|
| Loan clears in | 216 months - 18 years |
| Interest saved | $185,552 |
| Certainty | Total |
Put the same $500 a month into investments for those 18 years instead, and what you end up with depends entirely on what the investments do. From the compound interest calculator, on $108,000 of deposits:
| If it grows at | You would have |
|---|---|
| 5% | $172,628 |
| 6% | $190,480 |
| 7% | $210,459 |
Notice what those rows are. They are not a prediction. We do not know what markets will do, and anyone who tells you otherwise is guessing. They show what different outcomes would be worth, so you can see how close the race is.
At the low end the mortgage wins. At the high end investing wins by some margin. And the mortgage number is the only one on this page that is certain.
The part the numbers cannot settle
Investing keeps the money reachable. Money in an investment account can become an emergency fund, a tuition payment, or a bridge through a job loss. Money paid into a mortgage becomes equity in your house - real wealth, but locked up behind a sale or a new loan, and both of those are hardest to arrange exactly when you need them most.
Paying extra does not lower next month’s bill. Your required payment stays the same until the loan is completely gone. That surprises people. It is why prepaying and cash-flow relief are different things - a recast does the second, prepaying does not.
A paid-off house changes how people behave. With no mortgage, your floor cost of living is small. People take career risks, retire earlier, and sell investments in a panic less often. “I ended up slightly behind the best possible outcome” is a price many people are glad to pay for that.
That is not an irrational preference. It is pricing something a spreadsheet cannot see.
Do these four first
- Take any employer retirement match. It is an immediate return nothing here can match.
- Clear anything charging more than the mortgage. A card at 22% beats both options easily.
- Fill an emergency fund. Prepaying a mortgage while one bad month from card debt is building a wall with nothing behind it.
- Then this question is worth asking.
Skipping the order is how people end up with a smaller mortgage and a bigger credit card bill.
The split most people can actually keep up
Put half the extra at the mortgage and half into investments. $250 and $250.
Mathematically it lands between the two answers. In practice it is the version people stick with, because both things visibly move.
It is also easy to revisit. If your rate changes, or savings rates change, shift the split. There is nothing to undo.
The best plan here is not the one that wins by the largest margin on paper. It is the one you will still be funding in year five.
Run your own loan and your own timeline through the mortgage calculator and the compound interest calculator side by side, using your own assumptions rather than someone else’s.
Common questions about mortgage
Is it better to pay off a mortgage early or invest?
Paying off the mortgage earns exactly your mortgage rate, guaranteed. Investing might earn more and might earn less. When the two are close, it stops being a maths question and becomes a question about how much certainty is worth to you.
What return does paying off a mortgage earn?
Exactly your rate. Every extra dollar at 6.5% saves 6.5% a year, on that dollar, for the rest of the loan. There is no risk and no tax on it, which is not true of the alternative.
Does the mortgage interest deduction change things?
Only if you itemise. If you took the standard deduction on your last return, mortgage interest gave you no tax benefit at all, so it should not feature in your decision. Check your last return before counting on it.
What about a very low rate mortgage?
Keep it. If your mortgage charges less than a savings account pays, prepaying it turns a higher-earning asset into a lower-earning one. A cheap fixed mortgage is one of the better things to own.
What should I do before either?
Get any employer retirement match, clear anything charging more than the mortgage, and fill an emergency fund. Prepaying a mortgage while one bad month away from card debt is the wrong order.