Should you pay off a 7.5% mortgage or invest?
With a 7.5% mortgage and a 7% expected investment return, paying the mortgage down faster ends roughly $12,683 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 7.5% guaranteed vs ~7% (risky) expected:
- When the mortgage rate is well below your expected return (like 7.5% 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.
Why an entering-retirement payoff does double duty
Approaching retirement, a rate this high makes the mortgage payment one of the largest fixed costs in the budget — and fixed costs are exactly what make a retirement plan fragile. Erasing that payment before or early in retirement does two things at once.
It permanently lowers the spending floor. A smaller required withdrawal means the portfolio has less work to do every single year, which stretches how long it lasts and how much market weakness it can absorb.
It also blunts sequence-of-returns risk, the danger that a downturn in the first retirement years forces selling at low prices the portfolio never recovers from. With the mortgage gone, a bad early market requires pulling far less, so fewer shares are sold cheap and the base survives intact. A guaranteed return from prepaying is the visible benefit; a lower, more resilient withdrawal for the rest of retirement is the larger, quieter one. For someone near the finish line facing a rate in this range, retiring the loan is often worth more than its interest rate alone suggests.
Common questions
Should I pay off a 7.5% mortgage or invest?
On average, paying off the 7.5% mortgage wins by about $12,683, because that guaranteed return beats a ~7% risky one. 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.