Should you pay off a 5.5% mortgage or invest?
With a 5.5% mortgage and a 7% expected investment return, investing the extra money ends roughly $70,573 ahead after 30 years. But that's only the math on averages — paying off a mortgage is a guaranteed return and buys real peace of mind.
Why the mortgage rate decides it
Paying off a mortgage is a guaranteed return equal to the mortgage rate. Investing is an expected return with risk. So the comparison is simply 5.5% guaranteed vs ~7% (risky) expected:
- When the mortgage rate is well below your expected return (like 5.5% vs 7%), investing usually wins on average — your money compounds faster than the loan costs.
- When the mortgage rate approaches or exceeds your expected return, paying it off wins — and it's a certain win, with no market risk.
- Guaranteed vs risky matters. A paid-off house lowers your fixed costs and sequence-of-returns risk in retirement. Many people rationally choose the guaranteed return even when investing edges it out on paper.
Before you decide
A few things this comparison assumes you've already handled: capturing your full 401(k) match (an instant ~100% return that beats both), paying off any high-interest debt (credit cards dwarf a mortgage rate), and keeping an emergency fund. Money locked in home equity is hard to access without a sale or a HELOC — so don't pay down the mortgage with money you might need.
Assumptions: $450k home, 20% down, 30-yr term, an extra $12,000/yr toward principal, 7% investment return, 3% inflation, single filer. Mortgage interest is only deductible if you itemize — most people take the standard deduction, so this treats it as non-deductible. Model your own numbers in the calculator.
Measure it against what a safe dollar earns, not against stocks
The instinct is to compare a mortgage payoff to the stock market, but that is not the fair matchup. Prepaying is a certain, risk-free return equal to your rate. The honest benchmark is what an equally safe dollar earns elsewhere — Treasuries, a high-yield savings account, a CD — not the uncertain long-run return of equities. Against that safe-money yardstick, a rate in this range is a strong, guaranteed win.
Two details tilt it further. The return is locked in: you cannot lose it to a bad market, and it is effectively earned tax-free because you are avoiding interest rather than generating taxable income. And the mortgage-interest deduction that once softened the cost barely applies anymore — most households take the standard deduction and never itemize, so the rate you pay is the full rate, and the rate you save is the full rate.
Investing still carries a higher expected return, and over decades it often wins on paper. But that premium is compensation for risk you are choosing to take. When the guaranteed alternative already pays this well, insisting the extra risk earn its keep is reasonable.
Common questions
Should I pay off a 5.5% mortgage or invest?
On average, investing wins by about $70,573 over 30 years because a 7% expected return beats the 5.5% guaranteed by paying it off. But paying off is guaranteed and risk-free, which many people rationally prefer.
Is it worth paying off my mortgage early?
Financially it's worth it when your mortgage rate is at or above your expected after-tax investment return. Below that, investing usually builds more wealth — though a paid-off home reduces risk and fixed costs, which has real value beyond the math.
What should I do before paying extra on my mortgage?
Capture your full 401(k) match, clear high-interest debt (credit cards), and hold an emergency fund first — each of those beats extra mortgage payments. Only then does paying down a low-rate mortgage compete with investing.