Should You Pay Off Your Mortgage Early or Invest the Difference?
Whether to direct extra cash toward paying off a mortgage early or investing it instead is one of the more common personal finance debates, and while it's sometimes reduced to a simple rate comparison, a fuller decision involves risk tolerance, liquidity needs, and psychological factors that a pure numbers comparison leaves out. The basic rate comparison At the simplest level, if a mortgage's interest rate is lower than a realistic expected long-term investment return, investing the difference could produce a larger net financial outcome over time, since the mortgage is a fixed, known cost while investment returns have historically outpaced low mortgage rates over long periods, on average. Why "average" returns aren't guaranteed Extra mortgage payments provide a guaranteed return equal to the loan's interest rate — there's no uncertainty about that outcome. Investment returns, by contrast, are not guaranteed and can vary significantly year to year,...