Pay Off Mortgage Early Or Invest: Which is Best?


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Should I pay off my mortgage early or invest?

This is a question you will inevitably confront in pursuit of your own financial security. The problem is the answer is far more complex and confusing. Your first intuitive response is to get out of debt as soon as possible. In our minds, the concept of making monthly payments for an extended period of time is antithetical to freedom.

However, there are times when intuition and finance disagree.

There are times when the decision to pay off a mortgage early isn’t just about getting out of debt. You’ll need to weigh more. Weigh interest yet to be paid against return on investment, time-value of money, and inflation. There are times when debt is the cheapest solution and every shilling tomorrow might be preferable to debt freedom today.

Therefore, when deciding whether or not to pay off your mortgage early or invest, the objective is balance. To balance your own intuition with financially sound and smart decisions. Remember that the best answer is and will always be one that is custom-fitted to your own personal financial situation.

Related: How To Pay Off Your Mortgage Early: 5 Simple Ways 

Should I Pay Off My Mortgage or Invest?

The first step is to weigh your options. Figure out if there is anything more important than paying off your mortgage.

Have you built your personal financial foundation?

I am a firm advocate of getting your financial foundation in place before pursuing more advanced financial strategies. Your wealth can only grow as high as your financial foundation can support like how a skyscraper’s height is limited by the depth and strength of its foundation.

If you’ve got a sound financial foundation, then the answer to the “pay off your mortgage or invest” question becomes quite simple. Whatever gives you the highest after-tax return on your money is the right investment decision.

Before making such a decision though, consider the following:

Variable Investment Returns

Investment returns are highly variable. That even sometimes poor mortgage interest rates represent a superior return over a traditional investment portfolio.

But, mortgage interest saved becomes a bird in hand, in regards to the potential investment gains. Therefore, it becomes hard to find a 20-30 year period, where an investment portfolio would not provide higher than recent mortgage interest rates.

No Guaranteed Return

The problem with making any investment return comparison is the lack of guarantees. As such, you will be stuck at the start with a decision between a guaranteed, likely lower return for repaying your mortgage and an unknowable but potentially higher return for investment.

Therefore, the certainty of mortgage payoff versus the uncertainty of investment takes centre stage in your decision. Financial science may provide a clear answer. That is, investing historically has been known to provide a higher return in the long term. However, this is a decision you’ll have to live with for a long time. So, consider your risk tolerance, and confidence in the future you shape with the decision you make.

Random Human Nature

We as humans aren’t built like computers to implement brilliant ideas with mathematical precision execution. We deal with so many complexities that usually tend to throw us off course. That is life’s obstacles and our own human nature.

As such, here are three things to consider:

  1. If you invest instead of paying off your mortgage, would you be willing to refinance the equity out of your mortgage, thus increasing your debt, to add to your investment account? And, if your answer is an emphatic NO, then you are logically inconsistent with your decision.
  2. If you are someone who makes minimum mortgage payments and optionally, invests the difference, then how likely will you succeed with no discipline? It is said that the road to financial mediocrity is paved with the best intentions. In other words, an optional savings program that requires self-discipline is no savings program at all. Mortgages create enforced discipline – one that happens with certainty regardless of life’s wrinkles.
  3. Life is good at one thing – dishing out lemons when you least expect it. Nobody expects to lose their job, have medical problems, become disabled or invest in fraud; yet, over the course of a 30-year mortgage, the odds that you’ll experience one or more of these admittedly rare and unfortunate events are far greater than you would like to believe. Thus, when your home is paid off, it becomes easier to weather these storms. Always plan for the unexpected because eventually, it will happen.

Learn More: Easy Real Estate Math Every Beginner Should Know


It is human nature to consider debt as bad, and therefore strive to pay it off as quickly as possible. However, your alternative is not guaranteed as well. You can choose to pay off your mortgage. And, watch your investment portfolio double while your capital is tied to your house. Or, invest and see your investment portfolio decline. No telling!

It is important to note that investments do outperform mortgage interest, therefore it does make sense to prioritize investment capital. That being said, if you are no willing to refinance to invest the equity to pursue those higher returns or liquidate investments to pay off the mortgage or increase the mortgage to fund investments, then the decision may be too complex for you to make rationally and shouldn’t be taken lightly.

Image credits: Top by Monstera via Pexels.

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Irene Makanga
Irene has an MBA in Finance and is an avid businesswoman, passionate about financial literacy.


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