Should I pay off my mortgage or invest?

When you’ve got extra money, it’s normal to wonder what to do with it. Should you knock down your mortgage balance? Or grow your savings through investments?

Both options can help build financial security, but they work in different ways. Paying off your mortgage early can reduce long-term interest costs. Investing, on the other hand, could grow your money faster, especially if the market performs well over time.

The best choice depends on your goals, your timeline, and your comfort level with risk. You might even find that doing a bit of both feels right.

Paying off your mortgage vs. investing: A breakdown

Paying off your mortgage completely – and owning your home free and clear – can feel like a huge financial win. Without a monthly mortgage payment, your budget may feel a lot lighter. It’s also a move that can save you thousands in interest over the long term, especially if you’re early in your loan and most of your payments are still going toward interest.

If your income has recently increased, it might be a good time to consider paying off your mortgage early. Your mortgage interest rate also plays a big role. The higher the rate, the more you could save in interest over time. Think about your timeline as well. If retirement is still years away, investing could be a better fit. But if you’re nearing retirement, reducing debt might offer more peace of mind.

Just be sure to compare what you could save by paying off your mortgage early versus what you might earn by investing that same money. The right choice depends on your financial goals and your level of comfort with risk.

Mortgage interest savings comparison

This table shows how much interest you could save – and how much faster you could pay off your loan by adding $500 to your monthly payment on a $320,000, 30-year mortgage at 6.5%.

Investment ROI comparison over 18 Years

Here’s a table showing how $500 invested monthly over 18 years could grow in an investment fund, depending on the rate of return.

Pros of paying off your mortgage

Paying off your mortgage early can lead to real financial freedom. Here are some of the key upsides to consider:

• Save money on interest: When you pay off your loan ahead of schedule, you cut down the total interest you pay. That can mean saving thousands of dollars.
• Lower monthly costs: No more monthly mortgage payments means more room in your budget. You can use that extra money for other goals, like travel, home improvements, savings, or investments.
• Access your equity: Once you’ve built up more equity, you may qualify for a home equity line of credit or a cash-out refinance. That gives you options if you need funds down the road.
• More financial flexibility: Without a mortgage payment, your money can go further. You can put it toward what matters most to you – whether that’s your family, your future, or something fun.

Cons of paying off your mortgage

The idea of paying off your mortgage can feel like a huge financial win. But depending on your goals and situation, it might not be the best strategy for everyone.

• You might stretch your savings too thin: Using a large portion of your savings to pay off your mortgage can leave you financially vulnerable. Emergencies happen — unexpected car repairs, medical bills, or job changes — and it helps to have cash on hand. Once money is tied up in your home, it’s harder to access quickly.
• You could miss out on investment growth: Putting all your extra funds into your mortgage may limit your ability to invest in other places. Over time, retirement accounts or index funds might offer stronger returns. Choosing to invest instead of paying off your mortgage early could help you grow wealth faster, depending on your risk comfort and time horizon.
• You’ll lose a potential tax break: If you itemize deductions, the mortgage interest deduction could lower your taxable income. Paying off your mortgage early means you’ll no longer qualify for this tax deduction, which might affect your overall tax refund.
• Hedge against inflation: Over time, inflation can reduce the value of money. Since mortgage payments are typically fixed, their real cost shrinks year over year, which could make investing your extra money more appealing.
• There might be fees for an early payoff: While Rocket Mortgage® doesn’t charge a prepayment penalty, not all lenders are the same. Some charge fees if you pay off your mortgage too quickly. It’s a good idea to review your loan terms or check with your lender before making extra payments.

Choosing to invest vs. pay off your mortgage

Depending on your mortgage interest rate and your overall financial goals, investing could be a smart alternative. It all comes down to how comfortable you are with risk and how soon you’ll need access to your money.

Pros of investing your money

Before putting extra money toward your mortgage, take a moment to explore how investing could help build your long-term financial future.

• Potentially a higher rate of return: Investing in the stock market or a similar asset carries more risk, but it also offers the potential for a higher return than what you’d save by paying off your mortgage early.
• An increase in your future wealth: By investing in things like stocks, bonds, retirement accounts, or even a small business, you’re building long-term wealth and growing your net worth.
• Greater asset liquidity: If you need access to cash, it’s much easier to sell investments than it is to sell your home or apply for a cash-out refinance.
• Diversification of your financial strategy: Investing gives you the chance to spread your money across different assets, which can help reduce risk and create more financial flexibility over time.
• Potential for an employer match: If you’re contributing to a retirement account like a 401(k), your employer might match a portion of what you put in. That’s essentially free money — some employers match dollar for dollar, while others may contribute a percentage based on how much you save.

Cons of investing your money

Let’s now consider the disadvantages of investing, rather than paying off your mortgage.

• More risk, less certainty: Investing comes with ups and downs. While your returns could beat the interest savings from paying off your mortgage, they’re not guaranteed. Unlike your mortgage, investments can lose value — sometimes quickly.
• You’ll still have a monthly mortgage payment: Choosing to invest instead of paying down your mortgage means you’ll keep making that same payment every month. If your investments lose value, it can be frustrating to still have that debt hanging over you.
• Debt payoff might take longer: When your extra money goes into investments, it may take longer to chip away at big debts like your mortgage or student loans. You might eventually build up enough savings to pay them off — but that takes time, and the debt will still be there in the meantime.
• You might owe taxes on investment gains: Unlike the savings from paying off your mortgage, which you keep in full, investment profits can be taxed. That means a portion of your earnings could go to the IRS, especially when you sell or withdraw your funds.
• Emotional ups and downs: Investing can be stressful, especially during market downturns. Watching your balance fall, even temporarily, can lead to second-guessing your strategy. That’s a trade-off compared to the guaranteed savings from paying off a loan early.

Choosing to do both: Pay off your mortgage and invest

It’s possible to pay down your mortgage and invest at the same time — and many people choose this balanced approach. While splitting your money between the two means slower progress on each goal, it can still move you forward on both homeownership and long-term financial growth.

Other considerations

If you come into extra cash and aren’t sure whether to invest it or pay down your mortgage, there are other smart ways to put that money to work.

• Build an emergency fund: Having a financial cushion can give you peace of mind. An emergency fund helps you cover surprise expenses — like car repairs, medical bills, or sudden job loss — without needing to take on more debt.
• Pay down other debt: If you’re carrying high-interest debt, like credit cards or student loans, it may make sense to tackle those first. Reducing or eliminating those balances can free up cash in your budget and help lower your overall financial stress.

The bottom line: Whether to pay off a mortgage or invest requires careful consideration

Both options can help you build a stronger financial future. Paying off your mortgage early can save you thousands in interest. Investing could grow your wealth over time.

The right choice depends on your goals, risk comfort, and where you are in your financial journey. Do the math, compare the savings, and if you’re unsure, a financial advisor can help you find the best path. You might even decide to do a bit of both.

Want a mortgage you can pay off early without fees? Apply online today!