Pay off mortgage or invest the money
I ran some numbers to help with the debate
Mortgage 450k 30 year fixed 6.5% rate
1,000 extra per month to pay down or invest
Baseline mortgage math
450,000 dollar loan, 30 years, 6.5% rate monthly payment - 2,844 dollars.
Total payments: - 1,024,000 dollars (principal + interest).
Interest portion: 573,950 dollars
Paying 1,000 a month towards principal Paying pays off the 30-year mortgage in about 187 months, or a little over 15.5 years
Interest paid: 265,390 dollars.
Savings: 308,560 dollars in interest
That effectively locks in a 6.5% after-tax “return” on each extra dollar, because every extra payment permanently avoids 6.5% interest on that principal for the remaining life of the loan
1,000 dollars invested instead
Investing 1,000 dollars per month at an 8% annual return for 30 years (compounded monthly) grows to about 1.49 million dollars.
That future value assumes you actually earn 8% per year on average and can stay invested through all market conditions for the full 30 years.
Wow that looks like investing 1,000 a month is a better play 1.49 Million , but you need to remember you paid 574k in interest so in reality you ended up with 826k
One other thing to consider is Sequence of returns risk
Market returns are lumpy: a few bad years early on (recessions, crashes, flat decades) can massively reduce the ending value even if the long-run average is still 8%.
This “sequence of returns risk” means the path of returns matters, not just the average, especially if life events force you to tap investments or reduce contributions during drawdowns.
Now let’s look at another scenario paying off the mortgage in 15 years and investing the mortgage payment plus the extra 1,000 for 15 years at 8% return
$3,800 a month invest would grow to roughly 1.02–1.05 million dollars
Plus the 308,560 saved in intrest approximately 1.3 million not far off from the 1.4 million from just investing 1,000 a month
I personally think it come down to Guaranteed vs market risk
Extra mortgage payments are a risk-free, bond-like return equal to your mortgage rate; you know exactly how much interest you will not pay and when the loan will be gone.
Investing targets a higher expected return (8% vs 6.5%), but the outcome is uncertain and path-dependent, so the choice becomes: guaranteed 6.5% vs probabilistic 8% with real sequence risk and behavior risk
Please drop your thoughts below 👇
