Should I pay off my mortgage early or invest?

The short answer: it depends entirely on your mortgage rate. For rates under 5%, invest. For 7%+, pay off. The 5-7% range is a gray zone where both answers can be defensible, and the "right" choice depends on risk tolerance and psychology.

The pure math

• Paying off mortgage early = guaranteed return equal to your mortgage rate
• Investing in stocks = ~8-10% expected return but with volatility and risk
• If mortgage rate > expected investment return: pay off wins
• If mortgage rate < expected investment return: invest wins

Rate-by-rate breakdown (30-year horizon)

• 3% mortgage: invest. Historical stock returns (~10%) crush this. Paying off is essentially paying 3% to avoid 7%+ expected gain.
• 5% mortgage: mild tilt to invest. After tax benefits (if you itemize), effective rate is ~3.7%. Stocks still likely win but smaller gap.
• 6.5% mortgage (typical 2024-2025): close call. Split between both.
• 7.5%+ mortgage: pay off wins. Equity market expected return is 7-10% before taxes on gains — the risk-adjusted math favors payoff.

What the math doesn't capture

• Psychological freedom of no mortgage — valuable for some, irrelevant for others
• Risk of job loss: paid-off mortgage reduces required monthly expenses dramatically
• Tax benefits: mortgage interest deduction is reduced after 2017 law changes, matters less now
• Liquidity: home equity is not accessible without selling or taking a HELOC

The hybrid approach most people should consider

• Capture 401(k) match (non-negotiable)
• Max Roth IRA if eligible
• Then split extra cash flow: ~60% toward investments, ~40% toward extra mortgage principal
• Adjust based on how close you are to retirement

Special case: near retirement

If you're 5-10 years from retirement, paying off the mortgage becomes more attractive regardless of rate. Lower required monthly expenses in retirement means smaller portfolio needed, and removes sequence-of-returns risk from your first years.

The big mistake

Choosing between payoff and investing is not the most common mistake. The most common mistake is doing neither — spending extra cash flow on lifestyle instead of either goal. Whichever you choose, automating the decision (extra principal payment OR auto-invest) is what actually builds wealth.