Investing vs Paying Off Your Mortgage: Which Is Right for You?

Whether you should use extra income to pay off your mortgage or invest is a difficult question with serious implications for your financial future. As with many financial decisions, there is no one size fits all solution. Instead it’s about weighing the various factors and making the right choice based on your unique needs. 

Need help with your financial planning? Request a consultation with Good Life Financial Advisors today.

Before Considering Either Option  

If you have extra income, there are a few things you may want to consider before investing or paying off your mortgage. If you haven’t completed the following, you may want to start there: 

Pay Off High Interest Debt 

All debt is not considered equal. The interest rate on your mortgage is typically far lower than other debt. Credit card debt is one area where incredibly high interest rates are common. If you have extra income, you may want to consider paying off high interest debt before anything else. 

Create an Emergency Savings Fund 

If you put all your money toward paying off your mortgage and/or invest your money in illiquid assets, you won’t have money available should you need it for an emergency. Depending on your investment portfolio, you may be able to invest some of your money in more liquid assets. The important thing is to ensure you can access money in case of an emergency. Consider building up an emergency fund before investing or accelerating payment on your mortgage.

Max Out Your 401(k) Employer Match 

Any money that your employer matches is free money. No matter how you look at paying off your mortgage or investing, it can’t compete with free money. 

Interest Rate vs Expected Returns  

When considering whether to invest or pay off your mortgage, the first thing to do is review your mortgage interest rate and your expected return on investments. There is no way to predict future returns, but historically the average annual returns of the S&P 500 has been about 8%.

If your mortgage has an interest rate of 4.5% and you average an annual return of 7% from your investments, then investing will likely make you more money than the interest on your mortgage will cost you. Note, however, that investments are never guaranteed—there is always risk of loss when investing.

Psychological Benefits

Many people feel much more secure after paying off their mortgage. At the end of the day, most people’s financial goals are based around the desire to feel secure and have flexibility in their lives. It’s important to consider the numbers when making this decision, but owning a home is also an emotional decision for many people.

Perhaps investing has a better chance of increasing your portfolio, but if paying off your mortgage will provide you with more peace of mind than increasing your portfolio, it may still be worth paying off your mortgage first.  


Diversification is a key part of building an appropriate, well-balanced portfolio. Spending all your money on paying off your mortgage is essentially investing all your money in one thing. Investing typically provides more opportunities for diversification than owning a home, since you can invest your funds across different sectors and areas. 

Reduced Cost of Living

Paying off your mortgage may be worth considering if you’ll soon have a change in household income. For example, if you are retired or plan to retire soon, having fewer monthly expenses may be beneficial. Paying off your mortgage can drastically decrease your cost of living, which may allow for more flexibility and allow you to take more financial risks in other areas of your life. 

Tax Considerations 

There are many tax considerations that come into play when considering investing and your mortgage. If you spend all your extra income on paying off your mortgage, you miss out on tax savings in retirement savings accounts. On the other hand, if you pay off your mortgage completely, you miss out on tax breaks based on mortgage payments. 

Speak With an Advisor

What may at first seem like a simple choice has the potential to become incredibly complex. It’s also important to consider that it may not be an all or nothing choice. Paying off your mortgage while also investing is also an option.

No matter what you choose, it’s important to understand and consider all the implications that your choice will have on your future finances, taxes, and peace of mind. A consultation with a financial advisor from Goode Life Financial Advisors can help you create a comprehensive financial plan that accounts for such relevant factors.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

1 thought on “Investing vs Paying Off Your Mortgage: Which Is Right for You?

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