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Comparing returns

Crunching the numbers could help you make an informed decision. Let’s say you have a 30-year fixed-rate mortgage of $250,000. As of April 4, the average rate on a 30-year fixed-rate mortgage in the U.S. per Freddie Mac was 6.82%. Using a mortgage calculator, we see that your monthly payment will be $1,633.14 and you’ll pay a total of $337,932 in interest.

If you’re able to come up with an extra $500 per month, should you invest it or use it to pay down your mortgage faster?

If you pay an extra $500 per month on your mortgage, you’ll reduce the time it takes to pay it off by 13 years and 10 months. And this translates to savings of $175,082 in interest.

The average annualized return on the S&P 500 from 1957 to the end of 2023 was 10.26%. Assuming this return, if you were to invest $500 at the beginning of each month for 16 years (for comparison sake, this is approximately the amount of time it would take to pay off your mortgage in the above example), you’ll end up with $222,962.61.

With these assumptions, investing your money would net you around 47,000 more, in comparison to paying off your mortgage faster. Of course, your portfolio may be less aggressive or your mortgage rate may be higher, so it’s worth doing your own calculations (there are many online calculators that can help you do the math).

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Past performance is no guarantee of future results

While comparing your options, remember the stock market can be unpredictable and volatile, and there’s no guarantee that you will earn the historical average return.

It’s always safer to compare buying assets with guaranteed returns, like U.S. Treasury Securities, to paying off your mortgage early.

Your risk tolerance is higher if you have a long investment horizon. For example, if you’re in your 20s, you might want to put money in your 401(k) so you can benefit from compound interest while simultaneously paying down debt. In case of downturns, you still have time to wait for the market to recover and your long-term returns to exceed your mortgage rate. If you’re closer to retirement, a more conservative approach may be preferred.

Other considerations

If you have an employer-sponsored retirement account and your employer will match your contributions, then it may make sense to consider this option — it’s like getting free money, and that free money also earns compound interest over time. Plus, maxing out your tax-advantaged retirement accounts can provide certain tax benefits.

By paying off your mortgage early, you could save a boatload in interest payments, while building equity in your home faster. This is important if you’re paying for private mortgage insurance until you build enough equity in your home.

Also consider that you could be penalized for paying off your mortgage faster. Some lenders will ding you with a prepayment penalty — and those are dollars you could be investing elsewhere. It may be worth a chat with your financial advisor about which option will work best for you.


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Vawn Himmelsbach Freelance Contributor

Vawn Himmelsbach is a journalist who has been covering tech, business and travel for more than two decades. Her work has been published in a variety of publications, including The Globe and Mail, Toronto Star, National Post, CBC News, ITbusiness, CAA Magazine, Zoomer, BOLD Magazine and Travelweek, among others.


The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.