Jun 21, 2026
Homeowners’ biggest monthly expense is usually their mortgage. But if they get far along enough in their loan term, they may find themselves in a fortuitous position of being able to pay it off in full early.
If they choose not to, it likely means they are taking the calculated gamble that investing the money will reap greater returns in the long run that will surpass the interest that the lender will collect.
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Imagine someone named Eduardo who is 49 years old with $300,000 stored in a savings account — much more than the average savings account balance for adults aged 35 to 44, according to the financial data firm SoFi. He’s also dutifully paid off his mortgage for many years, but still has $180,000 left in the loan term.
With retirement just over a decade away, Eduardo is debating the best financial path ahead for himself. Does he invest the cash or focus on paying off his mortgage? It depends on one key variable: the mortgage rate
A high mortgage rate
Currently, the average mortgage rate for a 30-year loan stands at 6.4%, according to Freddie Mac. If Eduardo is paying off a mortgage with a high interest rate, then the calculation in front of him starts to change.
Assume Eduardo’s mortgage rate is close to 6.3%. At that level, financial advisors say it becomes more attractive to wipe out mortgage payments especially as the idea of retirement starts entering the picture.
LPL Financial devised a similar scenario in which a homeowner owing $300,000 with 20 years left on his mortgage loan term starts making an extra $400 payment each month, and pays off the mortgage six years early. They pointed out that the hypothetical homeowner saves $62,000 in overall interest paid to the bank from paying off the mortgage ahead of schedule.
Eliminating regular, fixed-mortgage payments will slash expenses considerably, and eases up on sizable income needs especially if Eduardo experiences a job loss.
Some studies also suggest that there are psychological benefits to paying off a mortgage early, such as the emotional relief of having one less monthly payment to make. Keep in mind, even after paying off your mortgage, homeowners still are required to pay property taxes.
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A low mortgage rate
If Eduardo’s mortgage rate was 4% or below, then investing becomes the more lucrative route, especially if he has a stable income and little fear of losing his job.
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Eduardo can put some or all of his savings into the stock market, depending on his risk tolerance. According to SoFi, a good annual return on investment is considered to be 7%. Though, on average, the U.S. stock market sees returns of 10% each year. In either scenario, market returns will outpace his low mortgage rate.
If Eduardo invested $200,000 — or two-thirds of his savings — into a diversified portfolio with a 7% return over ten years, compounded annually, his investment would grow to $393,430.
However, this is considered an optimistic scenario since it assumes little financial volatility in the stock market. The market can have bad years. The S&P 500, for example, plunged 19% in 2022, due to high inflation, aggressive rate hikes by the Federal Reserve, and geopolitical conflict.
Investment options to consider
There’s flexibility with investing since it provides easy access to cash. In order to access the equity you’ve built up in your home, you’ll more than likely have to sell your residence or take out a HELOC.
Using a financial windfall, Eduardo can route the extra money towards paying off the mortgage early or a surprise home expense that he hadn’t planned for.
Keep in mind, investment earnings are taxable. Capital gains taxes apply when a financial asset is sold, though the rate varies depending on how long it was held. A short-term asset held for less than a year is taxed up to 37% similar to ordinary income. Long-term assets are taxed up to 20% with an extra 3.5% added depending on the seller’s modified adjusted gross income.
Different types of investments provide differing rates of return. Parking cash in assets such as U.S. bonds or certificates of deposit is considered a safer bet, but the returns are much smaller. Finding an investment that offers a higher return, like stocks, index funds, and ETFs, compared to the mortgage rate that Eduardo is paying is the ideal choice.
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Joseph Zeballos-Roig is a policy and politics journalist based in Washington D.C with a focus on economics. He is experienced in connecting the significance of events in the capital to the lives of everyday Americans whether its taxes, tariffs, interest rates or federal programs.
