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Should you pay off a 6 to 7% mortgage or invest?

Last updated October 1, 2026

Most of the disagreement comes from comparing the wrong numbers. People put the mortgage's rate next to an after-inflation market return and call it even, or treat a guaranteed rate and an expected one as the same kind of thing. This guide works one example household through each of those and shows where the line actually falls.

It's planning and education, not financial advice. Every figure below comes from a made-up household, and the assumptions are stated so you can check the math yourself.

What people say, and what they leave out

Picture someone with a $600,000 inheritance deciding whether to put it toward the house or into an S&P 500 fund, with the mortgage at 6.875%. Ask around and nearly everyone says pay it off. Almost nobody puts a number on it.

The question keeps coming back, and people who paid off their house early are often the first to answer. Paying it off might well be the right call. But 6.875% sits right where the answer depends on numbers nobody checks.

An example household with $300,000 left at 6.5%

Example household (synthetic):

• Mortgage balance $300,000, fixed at 6.5% interest, 25 years (300 months) left
• Scheduled principal and interest of $2,025.62 a month
• $1,000 a month of spare cash, every month, for all 25 years
• Taxes and insurance left out, since they're the same either way. The loan is assumed to have no PMI.

One version of the household adds the $1,000 to the mortgage until it's gone, then invests the whole $3,025.62 it was paying every month until year 25. The other pays the mortgage on schedule and invests the $1,000 from day one.

Both spend exactly the same cash each month, and both owe nothing at year 25. The only thing left to compare is how much each one has invested.

What prepaying buys you

Adding $1,000 a month clears the loan in month 143, just under 12 years instead of 25. Total interest drops from $307,686 to $131,382. That's $176,305 saved, and it's guaranteed.

It's also the number people quote. On its own it's the wrong one to decide on, because it ignores what the other household's $1,000 was doing the whole time.

What investing buys you

Example: assume a 10% return before inflation, flat every year, in a tax-free account. The household that invested from day one ends year 25 with about $1,243,000. The prepayer, who only starts investing in month 143, ends with about $953,000. Investing is ahead by about $290,000.

10% isn't a forecast. Change the expected return or the mortgage rate and the gap moves a lot:

All returns in the table are before inflation. The $300,000, the $1,000 and the 25 years change how big the gap is. They don't change where it flips. Only the mortgage rate does that.

The line is the mortgage's effective rate, not its quoted rate

A mortgage compounds monthly, so a 6.5% interest rate actually costs this much a year:

(1 + 0.065/12)¹² - 1 = 6.697%

Market returns are normally quoted as annual figures, which makes 6.697% the number to compare against. In this example the break-even return lands exactly there. For the 7.5% mortgage it's 7.763%. The 6.875% mortgage above works out to about 7.10%.

That means an expected return of 6.6% against a 6.5% mortgage isn't a narrow win for investing. The prepayer is still slightly ahead. It's a 0.2-point correction, which only matters in close cases. At 6 to 7%, every case is a close case.

The 7% everyone quotes is already after inflation

Take the 7.5% mortgage. Read 7% as if it were a before-inflation return and the table says prepay: investing ends $48,080 behind. Now convert it properly. At 3% inflation, 7% after inflation is this before inflation:

1.07 × 1.03 - 1 = 10.21%

At that return, investing comes out about $230,000 ahead. Same household, opposite answer.

The mistake always leans the same way, toward the mortgage, because it understates the market by roughly the inflation rate. The fix is to keep both sides on one basis. Before inflation against before inflation works, and so does after against after. Mixing them doesn't.

Guaranteed versus expected, and why 6 to 7% gets close

A dollar sent to the mortgage earns the mortgage rate with certainty. A dollar invested earns whatever the market does. Comparing the two at face value flatters investing.

One blunt way to account for that is to knock 2 points off the expected return before comparing. It's a stand-in for risk and tax drag, not a model of either. Applied to a 10% expected return, the bar becomes 8%, and the 8% column in the table is the rough read.

With a 4.5% mortgage, investing stays ahead by about $214,000. At 6.5%, it's still ahead, by $89,165, roughly a third of the unadjusted lead. At 7.5%, the lead is $16,865 after 25 years. That's close enough to a coin flip that a household which values the certainty, or just hates owing money, is making a reasonable call by prepaying.

What this example doesn't model

The return is flat every year, and real markets don't work that way. Order matters. If the market earns 2% a year for the first ten years and 10% after that, the 6.5% household's investing lead falls from about $290,000 to $3,518. The prepayer barely notices, because they don't start investing until year 12. With a 4.5% mortgage, the same bad decade still leaves investing $150,959 ahead. That's one illustrative path, not a probability.

Taxes are only roughed in. The figures assume a tax-free account. In a taxable brokerage paying 15% long-term capital gains on the growth at year 25, the 6.5% mortgage at a 10% return shrinks from about $290,000 to $220,268. At a 7% return it flips, and prepaying wins by $10,877. State tax and dividend drag along the way aren't included at all.

The mortgage interest deduction is ignored too. Since the standard deduction roughly doubled in 2018, most households don't itemize. If you do, the deduction lowers what the mortgage really costs you, which tips things toward investing.

Liquidity doesn't show up in a year-25 number. At year 5 the prepayer has $70,674 of extra home equity, and the only ways to reach it are selling the house or borrowing against it. The investor has $77,172 at a 10% return (or $68,090 at 5%) in an account they can sell. That holds for a taxable account. Sheltering $12,000 a year tax-free usually means a 401(k) or IRA, and growth there can't be taken out freely before 59½. If a job disappears in year 5, those are very different positions. And prepaying doesn't lower the required payment: the prepayer still owes $2,025.62 every month until the loan is gone, unless the lender agrees to recast it.

It's also fixed-rate only. If you're still paying PMI, prepaying until it drops off earns an extra guaranteed return that can change the answer for the first few years. And the example assumes the $1,000 really gets invested every single month. Money sent to the mortgage can't be spent on something else, which is worth something the math gives no credit for.

Checking your own mortgage

1. Turn your interest rate (the note rate, not the APR on your Loan Estimate) into an effective annual rate: (1 + rate/12)¹² - 1.
2. Pick a before-inflation return you'd actually bet on, then take something off it for risk. 2 points is one blunt choice.
3. Compare the two. If the adjusted return is well above your effective rate, the math favors investing. If they're close, your emergency fund, your tax situation and how you feel about debt are fair tiebreakers.

Simura's Pay off debt scenario has a mortgage mode: add an extra monthly payment and watch the payoff date and total interest move on your own loan. You can model paying down the loan and investing the difference side by side in the simulator.