Key takeaway
The break-even is your mortgage rate. Extra principal on a 6.75% mortgage is a certain 6.75% saving; investing only wins if it averages more than 6.75% after taxes and fees over the same years. On a $400,000 loan at 6.75%, $500/month extra pays the loan off in 232 months instead of 360 and saves $218,962 in interest. At a 5% investment return the prepayment path ends the 30 years ahead; at 7% investing ends slightly ahead; at 8% it ends well ahead — but none of those returns is promised, and the 6.75% saving is.
Run your own numbers: Mortgage Payoff Calculator — see exactly what extra principal does to your payoff date and total interest.
The one honest starting point: prepayment is a guaranteed return
Every extra dollar of principal stops interest accruing on that dollar at your mortgage rate, immediately and for the remaining life of the loan. That is not a forecast. If your rate is 6.75%, prepaying earns 6.75% — in avoided interest — with no market risk, no sequence risk, and no dependence on what stocks do in any particular decade.
Two qualifications, stated plainly. First, the "return" is illiquid: it arrives as a smaller balance and an earlier payoff date, not as cash you can spend — getting it back means a HELOC, a refinance, or a sale. Second, it is a return on money you still owe the payment for: prepaying does not lower your required monthly payment (that is a recast), it shortens the loan.
Worked example: $400,000 at 6.75%, $500 a month on the table
The baseline loan: $400,000 at 6.75%, 30-year fixed. Required payment $2,594.39/month; total interest over 30 years $533,981. Now route an extra $500 a month two ways.
Path A — prepay the mortgage
- Payoff: month 232 — about 19.3 years, 10.7 years early
- Total interest: about $315,019
- Interest saved: $218,962, guaranteed by the loan contract
Path B — invest the $500 instead
Invest $500 a month and the balance at that same month 232 depends entirely on the return you actually get:
| Average return | Value at month 232 | Contributions |
|---|---|---|
| 5% | About $194,867 | $116,000 |
| 7% | About $244,724 | $116,000 |
| 8% | About $275,381 | $116,000 |
At month 232 the investor still owes about $236,269 on the mortgage — the prepay path owes nothing. So the fair snapshot at that date is investment balance minus remaining debt: about −$41,402 at 5%, about +$8,455 at 7%, and about +$39,112 at 8%, versus exactly $0 of debt and $0 invested on the prepay path. Investing pulls ahead at this horizon only when the return clears the mortgage rate — exactly as the break-even says it should.
The fair 30-year comparison (the one most versions get wrong)
Stopping the comparison at payoff flatters prepaying, because the investor keeps contributing for the remaining 128 months. The honest version runs both paths to the same finish line — month 360 — and, once the prepay path's mortgage is gone at month 232, invests the entire freed payment of $3,094.39 a month for the remaining 128 months. Both paths spend the same total cash.
| Average investment return | Prepay, then invest the freed payment | Invest $500/month throughout | Difference |
|---|---|---|---|
| 5% | About $521,876 | About $416,129 | Prepay ahead by ~$105,747 |
| 7% | About $586,369 | About $609,985 | Invest ahead by ~$23,616 |
| 8% | About $622,354 | About $745,180 | Invest ahead by ~$122,826 |
Read the 7% row carefully: a return only slightly above the 6.75% mortgage rate buys only about $23,616 of extra wealth over 30 years — in exchange for carrying market risk the whole way and still holding a mortgage until month 360. The gap only becomes large when the return clears the mortgage rate by a wide margin. That is the risk difference, priced.
The low-rate contrast
Run the same $500 against a 3.5% mortgage on $400,000 (payment $1,796.18): prepaying saves only about $88,200 in interest, and in the fair 30-year comparison investing ends ahead by about $74,544 at a 5% return and about $230,743 at 7%. A cheap mortgage is a low break-even hurdle; an expensive one is a high hurdle. The rate you happen to hold — not a universal rule — decides which side the math leans toward.
Taxes move both sides — check whether they move yours
- Mortgage interest deduction: if every dollar of interest were deductible at a 22% marginal rate, a 6.75% mortgage would cost 5.27% after tax (6.75% × 0.78), and 5.27% becomes the break-even. But that is the best case, not the typical one: many borrowers take the standard deduction, and only interest in excess of what the standard deduction already covers produces a real benefit. If you do not itemize, your break-even is the full 6.75%.
- Tax on investing: in a taxable account, returns are taxed — at a simplified 15%, an investment must earn roughly 7.9% before tax to clear a non-deductible 6.75% mortgage after tax. Inside a 401(k) or IRA there is no annual tax drag, so the pre-tax break-even stays near the mortgage rate — which is one reason the account the investing side lands in matters (see Roth vs. Traditional).
- Employer match changes the question entirely: a match is an immediate 50–100% return on matched dollars. Capturing the full match comes before either side of this comparison.
These are frameworks, not tax advice — whether you itemize, your bracket, and your account types are specific to you.
Liquidity and risk: the differences the spreadsheet hides
- Liquidity: an investment account can usually be sold in days. Home equity cannot — accessing it means qualifying for a HELOC or refinance (not guaranteed, and not free) or selling the home. Dollars sent to principal should be dollars you will not need back.
- Sequence risk: the investing rows above assume a smooth average return. Real returns arrive unevenly; a bad first decade leaves the investor behind the smooth table while the prepayer's saving never varies.
- Horizon: the investing case needs time — historically its edge has come over 10+ year stretches. If the money has a job within a few years, the certain saving is the only side whose outcome is known on that timeline.
- Behavior: both paths fail the same way — by not happening. Prepayment is automatic once set up; "invest the difference" only works if the difference is actually invested, every month, for decades. (The 15-year vs. 30-year comparison turns on the same discipline question.)
- Splitting is allowed: nothing in the math requires an all-or-nothing choice. Routing part of the $500 to principal and part to investing buys some guaranteed saving and some market exposure — the break-even framework prices each dollar the same way either way.
Before either side: what outranks both
- Higher-rate debt first: carrying credit card debt at 20%+ while prepaying a 6.75% mortgage — or investing — loses the spread for certain. Rate-rank every debt; the general version of this framework is pay off debt or invest?
- An accessible emergency fund: 3–6 months of expenses where you can reach it. A smaller mortgage balance does not pay a surprise bill (see debt or emergency fund first?).
- The full employer match: as above — no row in any table here beats an instant 50–100%.
The bottom line
There is no universal answer, and any source giving you one without asking your mortgage rate is skipping the deciding variable. The framework is three lines: (1) your mortgage rate is the guaranteed return on prepayment and the break-even investing must beat — after taxes, on both sides; (2) the further the expected return sits above that rate, and the longer your horizon, the stronger the investing case — on the 6.75% example, a 7% return buys only ~$23,616 over 30 years, while 8% buys ~$122,826; (3) liquidity, sequence risk, and whether you will actually invest the difference are real costs that belong in the comparison. Run your own rate and balance through the calculators below and see which side of the break-even you are actually on.
Do the math on your loan
Our free mortgage payoff calculator shows exactly what extra principal does to your payoff date and lifetime interest, and the debt vs. invest calculator runs both paths side by side with your numbers.
Related research
- Extra mortgage payments: the real math — how extra principal shortens a loan, and monthly vs. lump-sum vs. biweekly compared.
- Pay off debt or invest? — the same guaranteed-return framework applied to all debt, not just a mortgage.
- 15-year vs. 30-year mortgage — the invest-the-difference case inside the term choice itself.
- Biweekly mortgage payments — one extra payment a year, automated: the prepayment path in its simplest form.
Related calculators
- Mortgage Payoff — how extra payments shorten your loan and cut interest.
- Debt vs Invest — pay down debt or invest the same dollars, side by side.
- Compound Growth — what the investing side compounds to at different returns.
- Refinance Analyzer — lowering the rate itself is the third option: does it beat both paths after closing costs?
Frequently asked questions
Is paying extra on my mortgage really a guaranteed return?
Yes, in the specific sense that matters: every extra dollar of principal stops interest accruing on that dollar at your mortgage rate, for sure, for the rest of the loan. On a 6.75% mortgage that is a certain 6.75% saving before any tax effect. It is not cash income and it is not liquid — the saving arrives as a smaller balance and an earlier payoff date, not as money you can spend.
What return does investing need to beat paying off a 6.75% mortgage?
Before taxes and fees, investing must average more than 6.75% a year over the same period — the mortgage rate is the break-even. In a taxable account, if returns are taxed at 15%, the pre-tax return needs to be roughly 7.9% to clear a non-deductible 6.75% mortgage after tax. And clearing it on average is not the same as clearing it in your actual sequence of years.
How much does $500 a month extra save on a $400,000 mortgage at 6.75%?
The required payment on $400,000 at 6.75% for 30 years is $2,594.39 a month and $533,981 in total interest. Adding $500 a month in extra principal pays the loan off in 232 months — about 19.3 years, or 10.7 years early — and reduces total interest to about $315,019, a saving of $218,962.
Does the mortgage interest deduction change the answer?
Only if you actually itemize and the deduction actually applies. If every dollar of mortgage interest were deductible at a 22% marginal rate, a 6.75% rate would cost 5.27% after tax, and that lower figure is the one investing has to beat. But many borrowers take the standard deduction, and only the interest above what the standard deduction already gives you produces a real benefit — for them the effective rate is much closer to the full 6.75%.
What should come before extra mortgage payments or extra investing?
Three things outrank both sides of this comparison: an employer retirement match, which is an immediate 50–100% return on the matched dollars; higher-rate debt, because carrying 20%+ credit card debt while prepaying a 6.75% mortgage or investing is a guaranteed loss on the spread; and an accessible emergency fund, because extra mortgage principal cannot be retrieved quickly without borrowing against the home or selling it.
Last updated: October 25, 2026