7.5% guaranteed risk-free
Extra payments vs. investing
Paying down a mortgage at 7.5% gives you a guaranteed 7.5% return, while investing in the S&P 500 averages roughly 10% nominal (7% real) over decades but with significant volatility. Always capture the 401(k) match first — it's an instant 50-100% return. Above the match, the right answer depends on your mortgage rate, marginal tax rate, and risk tolerance.
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Try calculatorKey takeaways
04 · ideas- Paying mortgage at 7.5% = 7.5% equivalent at loan rate return, tax-free growth
- S&P 500 averages ~10% nominal, ~7% real — but with volatility
- 401(k) match always wins first — it's an instant 50-100% return
- The right answer depends on your rate, tax situation, and risk tolerance
Illustrative chart
$200k · 7.5% · 30yr
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If you have $500 extra per month, should you pay down your mortgage faster or invest it?
The short answer: it depends on your mortgage rate compared to what you'd earn investing.
- If your mortgage rate is higher than expected investment returns → pay mortgage
- If your mortgage rate is lower → invest
- If they're roughly equal → personal preference wins
But first: prioritize capturing any 401(k) employer match before either. A 100% employer match is a guaranteed 100% instant return — nothing beats that.
Simple rule of thumb:- Mortgage rate > 7%: pay down mortgage
- Mortgage rate < 4%: invest the difference
- Mortgage rate 4–7%: both are reasonable, choose based on psychology