Mortgage Payoff vs Investing: A Guaranteed Return

What the pros wish you knew: your mortgage payoff is a guaranteed return

Here’s the thing: paying extra on your mortgage is not “kinda like investing.” It is a guaranteed return. Portfolio managers in 2025 frame it exactly that way. Every extra dollar you throw at principal “earns” your mortgage rate, risk-free, for as long as that loan would’ve been outstanding. No volatility, no red days, no earnings calls. If your rate is 6.75%, that prepayment is a sure 6.75%, unless you itemize deductions and actually get a tax benefit, in which case it’s your after-tax rate. We’ll keep it apples-to-apples.

So, how do pros compare it? Simple stack-up: the after-tax mortgage rate versus your expected, after-tax, risk-adjusted portfolio return. If you don’t itemize, your after-tax mortgage rate is just your sticker rate. And a lot of households don’t itemize. The IRS has reported that the share of returns with itemized deductions has hovered around the low-to-mid teens since the TCJA changes, roughly 13-14% in recent years (2019-2022 data), so many borrowers get no mortgage interest tax offset. If that’s you, a 6.5-7.0% mortgage is a true 6.5-7.0% hurdle. Beat it after taxes and volatility or take the sure thing.

Context matters in 2025. After a big 2023-2024 run, U.S. stocks are still, well, stocks, great long term, moody short term. Long-run U.S. large-cap returns have averaged about 10% nominal per year since 1926 (Ibbotson/CRSP data), but that’s a median mindset, not a paycheck guarantee. Meanwhile, cash and T-bills were around 5% for much of 2023-2024, and yields this year are off the highs but still solid by post-2008 standards. Point is, the market can potentially out-earn a 6-7% mortgage over time, but there’s risk and taxes and, yes, your nerves.

Look, time horizon is the swing factor. Shorter horizons favor certainty. If you’re five years from selling or retiring, front-loading guaranteed savings starts to look pretty smart. Longer horizons can favor markets because compounding and risk premia have time to work. Actually, let me rephrase that: longer horizons give volatility time to even out; it doesn’t vanish, it just gets less jumpy, less jumpy.

Quick example: On a 6.75% 30-year, $1,000 extra to principal “earns” 6.75% risk-free. If you itemize and your combined tax rate makes 20% of your mortgage interest deductible value show up on your return, your after-tax hurdle is roughly 6.75% × (1 − 0.20) ≈ 5.4%.

Behavior matters too. Sleep-at-night value is real, you know. I once paid an extra $500/month on my own loan during a choppy year, not because the spreadsheet said it was perfect, but because it stopped me from fiddling with trades I had no business making. Discipline has a return.

What you’ll get here: we’ll set the math in plain English, after-tax mortgage rate vs. after-tax, risk-adjusted portfolio return, then layer in your horizon, liquidity, and behavior. We’ll talk practical cutoffs (when a 6-7% sure thing beats a maybe-8-9% portfolio), taxes (who actually benefits from itemizing in 2025), and how to combine prepayments with investing without feeling like you have to pick a single religion. And we’ll be honest about market conditions this year: solid yields, still-uncertain inflation path, stocks that can deliver but can disappoint. The goal isn’t perfection; it’s a decision you won’t regret in six months… but that’s just my take on it.

• Key idea #1: Extra principal = risk-free return equal to your mortgage rate (after tax).
• Key idea #2: Compare after-tax-to-after-tax, and adjust for risk.
• Key idea #3: Time horizon pushes the scale, short favors certainty, long can favor markets.
• Key idea #4: Behavior counts. Peace of mind is a real input, not a rounding error.

First things first: the 2025 money hierarchy

First things first: the 2025 money hierarchy. Here’s the thing, before you even touch the payoff-vs.-invest calculator, the order of operations does most of the heavy lifting. Sequencing mistakes are what blow up good plans. I’ve watched plenty of smart folks earn 8% in a brokerage while paying 23% on a card balance. That math… hurts.

1. Build your cash buffer. Keep 3-6 months of expenses in high-yield cash; bump it to 9-12 months if your income is variable, commission-heavy, or you’re a one-income household. In 2025, online savings and T-bills are still paying roughly 4-5% depending on the week, which is not nothing. And no, this pile isn’t “lazy”, it’s your insurance against job hiccups or, you know, the water heater dying on a Sunday.

2. Kill high-interest debt next. Anything over 10-12% APR moves to the front of the line, period. The average credit card APR in 2025 is north of 22% on accounts that revolve (Fed data), which means a guaranteed, risk-free “return” of 22% by paying it down. You won’t reliably beat that in markets, not this year, not most years. And no, a 7% mortgage is not “high-interest” in this context.

3. Grab your full 401(k) match. Free money beats prepaying a 6-7% mortgage. A common employer match is roughly 3-5% of pay (Vanguard plan data from last year), and skipping it is leaving dollars on the table you’ll never recieve back. Even if you’re still wrestling a 12% card, I’d at least contribute enough to capture the match while you’re aggressively paying the card, tiny exception that pays.

4. Max the tax-advantaged accounts you actually use. After the match and after toxic debt is gone, fill the buckets that reduce taxes: your 401(k) (employee deferral limit for 2025 is $23,500, catch-up still $7,500 if you’re 50+), your HSA if eligible ($4,300 self-only / $8,550 family in 2025; +$1,000 catch-up at 55), and your IRA/Roth ($7,500 limit for 2025; income limits apply). Look, I get it, some folks don’t actually use HSAs for investing. That’s fine, but if you do, the triple-tax benefit is hard to beat.

5. Then compare mortgage prepayments vs. taxable investing with what’s left. This is where the earlier framework kicks in. With 30-year mortgage rates still around the mid-6s to ~7% in 2025 and after-tax HYSA/T-bill yields near 4-5%, the decision is closer than it was a few years ago. If your effective after-tax mortgage rate is, say, 5.5-6.2% depending on your bracket and whether you itemize (most households didn’t itemize last year because the standard deduction was so high), prepaying is a real, sure return. But if you’ve got a long horizon and can stomach bumps, taxable index funds may still win on expected return. Anyway, we’ll run the math later; the point is you only get here after the steps above.

Quick clarification because this gets messy: I’m not saying cash first means “hoard 12 months no matter what.” If your job is stable and you’ve got access to a HELOC as a backstop, 3-4 months may be fine. Actually, let me rephrase that, fine for you. Behavior matters. If sleeping well means 9 months in cash, do it. The peace-of-mind dividend is real, not a rounding error.

And remember taxes are part of the sequence. In 2025, tax-advantaged space is scarce and valuable. Maxing what you’ll actually use beats racing to pay an already decent-rate mortgage just because everyone at brunch is doing it. This actually reminds me of a client who was prepaying a 6.25% loan while skipping an HSA, even though they had ongoing medical expenses. Once we flipped the order, their after-tax picture improved immediately.

Bottom line: cash cushion → kill >10-12% debt → capture the match → max the accounts that cut your tax bill → then weigh mortgage prepayments vs. taxable investing. Get the order right and the rest gets, well, a lot easier.

Do the rate math (the right way)

Here’s the thing, this decision shouldn’t be vibes-based. It’s math-based. Clean math, simple inputs, no hero assumptions. Start with the core formula: after-tax mortgage rate = mortgage rate × (1 − marginal tax benefit of interest). Then compare that to a conservative, after-fee, after-tax, risk-adjusted portfolio return. If the mortgage beats your credible investing return, prepaying is, well, financially superior.

Step 1: Figure out your actual tax benefit

• Post-2017 TCJA, most households don’t itemize. IRS statistics show the share of filers who itemized dropped to about 10% in 2018-2019 and stayed low in subsequent years. If you don’t itemize, your marginal tax benefit from mortgage interest is basically 0%.
• The SALT cap is still $10,000 in 2025, which limits how quickly you clear the standard deduction hurdle.
• TCJA’s individual provisions are scheduled to sunset after 2025 unless extended, meaning standard deductions could shrink and more folks might itemize again. Translation: re-run this math in early 2026.

Step 2: Compute your after-tax mortgage rate

• If you’re at 6.75% and you don’t itemize: after-tax = 6.75% × (1 − 0) = 6.75%.
• If you’re at 6.75%, in the 24% bracket, and your itemized deductions are already comfortably above the standard deduction: after-tax ≈ 6.75% × (1 − 0.24) = 5.13%. If your itemization only barely clears the standard deduction, the marginal benefit could be lower, don’t overstate it.

For context, mortgage rates this year have been sticky. Freddie Mac’s Primary Mortgage Market Survey has the 30‑year fixed hovering in the high‑6% range in August-September 2025. Not 3%. Not 4%. High‑6s. You feel it.

Step 3: Build a credible investing comparator

• Your expected return should be after-fee and after-tax. If your all-in ETF fee is 0.06% and your advisor takes 0.25%, subtract them.
• Make it risk-adjusted. Headlines say equities did X last decade, but that wasn’t guaranteed. Equities are risky, great over the long term, but bumpy. I usually haircut the rosy number a bit for regret control.
• 2025 reality check: the 10-year Treasury has been around the low-to-mid 4% range this summer. A 60/40 in taxable might land near ~3.5%-5.0% after-tax, depending on your bracket and asset location. If I remember correctly, most folks overstate this by 1-2 percentage points.

Step 4: Compare

• If your after-tax mortgage rate is greater than your after-tax, after-fee, risk-adjusted expected portfolio return, prepaying the mortgage is financially superior.
• If it’s close, say within 0.5-1.0 percentage point, a split strategy (50/50 between prepayments and investing) reduces regret while you, you know, collect more data about your income stability and market conditions.

Quick example (no magic, just math):

• Mortgage: 6.75%, you don’t itemize → after-tax mortgage rate = 6.75%.
• Portfolio: 60/40 in taxable. Assume 5.2% nominal pre-fee; subtract 0.3% fees = 4.9%; taxes shave another ~0.7% → call it ~4.2% after-tax. Then haircut a bit for risk, say to ~3.8%-4.0%.
• Result: 6.75% vs. ~3.9%. The mortgage wins. Prepaying creates a risk-free return that beats your realistic investing bogey.

What if you truly itemize? At 6.75% and a 24% bracket, your after-tax rate is ~5.13%. If your credible after-tax investing return is ~5%, that’s a toss-up. In that case I think a 50/50 split is smart, pay extra on the mortgage and keep buying your diversified fund. You won’t recieve a medal for precision here; you’re managing risk and behavior.

Two reminders, because repetition helps: (1) re-run the math in 2026 when TCJA stuff may reset; (2) keep assumptions boring and defensible, after-fee, after-tax, risk-adjusted. Honestly, simple beats clever nine times out of ten. Anyway, that’s the rate math that actually helps you make a call.

Liquidity, optionality, and the “can I get to it?” test

Look, rate math is great, but your plan lives or dies on access. Paying down a mortgage is one-way: once you send extra principal, it turns into home equity you can’t easily spend without borrowing again. That’s fine if your cash flow is steady and your emergency fund is stout. If not, you’ve just locked dollars behind drywall.

Illiquid prepayments vs. liquid markets

• Prepayments are illiquid home equity. If something breaks (job, roof, life), you’ll need a HELOC or a cash-out refi to tap it. As of September 2025, the U.S. prime rate is 8.5%, and many HELOCs price at prime plus a margin, so call it roughly ~9%-10% all-in today. That’s the “toll” to access the equity you just prepaid.
• Market funds are liquid. A diversified index fund or a government money market fund can be sold in a day. And right now, government money market funds are paying real cash: 7‑day SEC yields are roughly ~5.0%-5.2% in September 2025 (varies by fund). You can rebalance, tax-loss harvest if markets wobble, or just sit and collect yield.

Refi optionality (this matters a lot)

Here’s the thing: optionality cuts both ways. If 30‑year mortgage rates drift lower later this year or in 2026, prepaying today still helped because you’ll refinance a smaller balance. If rates don’t fall, the prepayment earned you a sure return that’s competitive with your realistic after‑tax market bogey. As of early September 2025, national 30‑year fixed quotes are hovering around the high‑6s to ~7% for well-qualified borrowers, so we’re not in a 3% world. I’m still figuring this out myself in my own plan, but that’s the real trade: certainty now, optionality later.

“Can I get to it?” checklist

• Emergency access: If you prepay aggressively, set up a standby HELOC before you need it. You don’t have to draw; you just want it available. Underwriting is easier when you’re not under stress.
• Income volatility: If bonuses/equity comp swing a lot, keep more cash and prepay less. Simple rule of thumb I use with clients: if >30% of your annual comp is variable, target a fatter liquidity buffer (9-12 months expenses instead of 6). Anyway, adjust to your own stomach for risk.
• Rebalancing and taxes: Markets move. Liquidity lets you sell winners, buy laggards, and tax‑loss harvest in down spells (2022 was a great reminder). Home equity can’t do that.
• Insurance check: Make sure disability and life coverage are right-sized. A 20‑ or 30‑year level term policy that clears the mortgage if something happens keeps the whole plan intact. It’s boring, but it’s the guardrail.

Personal note: I watched a colleague prepay hard in 2021-2022, then need cash when a start‑up grant got delayed. The HELOC he opened before quitting his W‑2 saved him, pricing wasn’t cheap, but access was everything. Actually, let me rephrase that: the rate mattered less than having the door open when he needed it.

So, if liquidity is tight or your job is lumpy, tilt toward market funds and minimum mortgage. If your cash is robust and job stable, prepaying makes sense at these ~6.8%-7.0% mortgage levels. You won’t recieve a medal for precision.. but that’s just my take on it.

Taxes, where you live, and what kind of mortgage you have

Here’s the thing: taxes and loan type can flip the math. The federal mortgage interest deduction only helps if you itemize. After the Tax Cuts and Jobs Act set the state and local tax (SALT) cap at $10,000 in 2017, far fewer people itemize. IRS data show roughly 10% of filers itemized in 2021, down sharply from pre‑TCJA years. If you don’t itemize, the interest deduction is basically a mirage, you still pay the interest, you just don’t get a tax offset.

SALT, state rules, and the standard deduction

• SALT cap: Capped at $10,000 per return since 2017 (property + state income/sales tax). It’s scheduled to sunset after 2025 unless Congress extends it. High‑tax states, CA, NY, NJ, CT, IL, feel this most. If your property tax alone eats the cap, your mortgage interest may not move the needle for itemizing.
• Debt cap: Mortgage interest on acquisition debt is deductible only up to $750,000 of principal for loans taken after Dec. 15, 2017 (older loans can be grandfathered at $1 million). HELOC/second‑mortgage interest is generally deductible only if used to buy/build/substantially improve the home, per IRS guidance from 2018.
• Standard deduction reality check: With fewer folks itemizing post‑TCJA (again, about 10% in 2021 per IRS), the after‑tax “subsidy” of your mortgage is often zero. That makes a 6.8%-7.0% mortgage, after tax, still… about 6.8%-7.0% for many households this year.

ARM vs. fixed: reset risk changes behavior

If you’re on a 5/6 or 7/6 ARM, the reset math matters. ARMs typically reprice to an index (often SOFR) plus a margin (commonly ~2%-3%), with caps like 2/1/5. If your first adjustment is coming and rates stay sticky, the payment could jump materially. That uncertainty can justify paying down principal faster before the reset date, especially if you’re inside 12-24 months. Actually, let me rephrase that: if you hate surprises and the budget is tight, prepaying on an ARM is less about beating the market and more about reducing a known risk.

Primary vs. rental property

• Primary home: Deductibility depends on itemizing, SALT cap, and debt caps. Prepaying is a personal cash‑flow choice.
• Rental: Mortgage interest is generally deductible on Schedule E against rental income, regardless of itemizing. Here, payoff vs. invest is an investment optimization problem: does an extra dollar to principal beat your next‑best after‑tax return? Also, use boosts equity IRR when rents grow faster than financing costs, but it cuts both ways in a soft rental market.

Jumbo and high-cost areas

Jumbo loans (above the conforming limit set annually by FHFA; higher in designated high‑cost counties) often carry higher rates and can run into the federal $750k interest‑deduction cap. Two frictions at once: slightly pricier financing and potentially nondeductible interest. In those cases, the emotional “I want it gone” argument and the spreadsheet can actually agree.

Near retirees: sequence risk

If you’re 3-5 years from retirement, reducing fixed housing costs now can stabilize future withdrawals. Sequence risk, bad market returns early in retirement, punishes high, inflexible expenses. A smaller or fully paid mortgage means you can trim portfolio draws in a down year without selling as much at depressed prices. It’s not fancy, but it’s effective.

Quick circle back: if you don’t itemize because of the $10k SALT cap and the standard deduction, your mortgage is an after‑tax 6-7% hurdle today. That’s the simple version, maybe too simple, but it keeps you honest when comparing to “expected” portfolio returns.

One last practical note, you know I can’t help myself. If you’re weighing, is paying off mortgage smarter than investing now, your exact state taxes, ARM schedule, and whether it’s a rental will swing the answer. Run it after‑tax, include reset caps, and sanity‑check your liquidity. Then decide. And if it helps, I still keep a small amortization spreadsheet open like it’s 2005… old habits.

What’s different right now in 2025

Look, the backdrop today isn’t the same as it was two or three years ago, and pretending we can script the next 12 months is how people end up disappointed. Here’s what actually matters for the pay-the-mortgage vs invest-now decision this year.

• Mortgage rates: We’re off the 2023 highs but nowhere near the 2020-2021 freebies. The national 30‑year fixed peaked around the high‑7% range in late 2023 (Freddie Mac’s weekly survey touched about 7.8% in October 2023). In 2025, rates are lower than that peak but still well above the 2-3% pandemic lows. Translation: the “guaranteed” after‑tax return from prepaying a 6-7% mortgage is meaningfully higher than a few years ago, especially if you don’t itemize because of the $10k SALT cap. That hurdle is real.
• Inflation and cash: Inflation has cooled a lot from the spike, June 2022 CPI year‑over‑year was 9.1% per the BLS, but price levels are higher and sticky. Your groceries, insurance, property taxes, and that random “maintenance” line item? They reset higher and tend to stay there. So, cash buffers matter more now. Having 6-12 months of expenses in cash or short‑term Treasuries (which actually pay real interest again) buys you flexibility. It’s boring, but boring helps you sleep.
• Stocks aren’t a single number: Long‑run U.S. stock returns have averaged roughly 9-10% annually over 1926-2023 (Ibbotson/CRSP). Great. But that’s an average built on a lot of “ouch” and “wow” years. Expect a wide range, not a clean 10% every year. If you need money on a schedule, the dispersion matters more than the mean. I keep repeating that because it’s the piece people forget, often right before a rough patch.
• Bonds pay again: Yields are materially higher than the early 2020s. Think 10‑year Treasuries in the 4% neighborhood instead of flirting with 1% in 2020. That lifts expected returns for balanced portfolios and finally gives diversification some teeth. But it also makes mortgage prepayment more competitive: a sure 6-7% after‑tax equivalent is tough for core bonds to beat without taking duration or credit risk you may not want.

Here’s the thing: this set‑up changes the calculus, but not the humility. Equities could rip, or they could tread water. The Fed could cut later this year or move slower. Your mortgage rate doesn’t care, it’s a contract. If the fixed rate on your primary home is north of 6%, prepaying is closer to a “high‑single‑digit” bond with no mark‑to‑market and tax‑free imputed return. If you’re sitting on a 3% relic from 2021, different story, protect the coupon and invest excess elsewhere.

Practically, I’d frame it like this, and yes I’m using more words than necessary to say something simple: make sure your emergency fund is topped up (higher prices require a bigger cushion), max any obvious employer matches, compare your after‑tax mortgage rate to the expected return of a balanced portfolio given today’s yields, and then decide how much risk budget you want to allocate to volatility vs a sure thing. If that sounds like common sense… it is.

Reminder: Inflation eased from its 2022 peak (9.1% YoY in June 2022 per BLS), but your cost base didn’t roll back. Budget to the price level you actually pay, not to a headline rate you saw last month.

Personal note, earlier this year I watched a client pay down a 6.6% mortgage while keeping 9 months of cash in T‑bills. They didn’t “win” an optimization contest, but their monthly nut dropped and their stress dropped with it. Sometimes that’s the real objective. I still like spreadsheets (too much, honestly), but peace of mind is hard to model… and easy to feel.

So, if you want a neat formula, you won’t recieve one here. Rates are lower than the 2023 spike, stocks still swing, bonds finally pay, and inflation’s cooler but not gone. Anchor to that reality, pick your mix, and keep enough liquidity so you’re not forced to sell on a bad day, because bad days still happen, occassionally twice in a week, but that’s just my take on it.

Your 20-minute checkup: run it and choose a rule you’ll stick to

Your 20‑minute checkup: run it and choose a rule you’ll stick to

Look, you don’t need a PhD here, you need a quick, honest comparison and something you’ll actually follow on a busy Wednesday. Set a 20‑minute timer and run this once. Today, not someday.

1. Calculate your after‑tax mortgage rate. If you don’t itemize deductions, your effective rate is just the sticker rate, period. That’s most people. IRS data shows roughly 87% of filers used the standard deduction in 2021 (post‑TCJA patterns have stayed similar), which means their mortgage interest didn’t reduce taxes at all. If you do itemize and your mortgage interest actually pushes you above the standard deduction, use: after‑tax rate = stated rate × (1, marginal tax rate). Quick example: 6.25% rate, 24% bracket → about 4.75%. If you’re only partially itemizing (common with the SALT cap), be conservative and assume the benefit is smaller, round up the effective rate, not down.
2. Estimate a conservative, after‑tax expected return for your portfolio. Keep it simple and net of fees. A plain way to do this:
   • Stocks: long‑run U.S. large‑cap returns have averaged ~10% nominal from 1926-2023 (Ibbotson/SBBI style figures), but that’s before taxes and with plenty of pain along the way. For planning, I haircut to 6-7% pre‑tax for a broad stock index.
   • Bonds/cash: use your actual yields in accounts today and subtract your tax rate if they’re in taxable accounts. If your bond fund yields 4.5% and you’re in a 24% bracket, call it ~3.4% after tax; in an IRA/401(k), you can just use 4.5% for comp purposes.
   • Blend by your mix: a 60/40 might land near ~5% after tax for many households right now, give or take. I’m rounding on purpose, you don’t win points for false precision.
3. Compare the gap. If the expected return after tax on your portfolio beats your after‑tax mortgage rate by a clear 1-2 percentage points or more, invest. If your mortgage rate clearly beats your portfolio by 1-2 points, prepay. If it’s fuzzy, say the spread is under 1% and you’re shrugging, split the difference: 50/50 for six months and reassess. This isn’t cowardice; it’s risk management.
4. Automate it so willpower isn’t required. Set biweekly extra principal payments (even $100-$250 per paycheck moves the needle) or schedule automatic investments on paydays. Don’t rely on “I’ll remember.” You won’t. I’ve watched traders forget to roll a T‑bill; we’re all human.

Here’s the thing, I’m about to use jargon. “After‑tax expected return” sounds fancy. Actually, let me rephrase that: what do you think your money will earn in your real accounts after fees and taxes, on average, if the next decade is normal‑ish? That’s it. Not perfect, but useful. And useful wins.

Personal aside: I get oddly excited when the math is obvious, like a 7% mortgage versus a 3.5% after‑tax bond yield. That’s a layup to prepay. But sometimes it’s 6% versus a 5.5% portfolio, you know, basically a coin toss. In those cases I go boring: half and half, with a calendar reminder in six months. Enthusiasm drops, results don’t.

Reality check data to keep you grounded: most households won’t get a mortgage tax break because they don’t itemize (again, ~87% used the standard deduction in 2021 per IRS). Also, while stocks have returned about 10% annually since 1926 through 2023, single‑year outcomes swing wildly, 2022 was negative double‑digits for equities and core bonds at the same time, so pad your expectations. If you want to be extra conservative, haircut stock expectations to 5-6% and ask: does the decision still hold?

Challenge (this week): pull your mortgage rate and confirm whether you itemize, list your accounts (taxable, Roth, 401(k), etc.), write down a conservative after‑tax return for each sleeve, and commit to a written rule you’ll follow for the next 12 months. Example: “If my after‑tax mortgage rate is ≥1% higher than my portfolio’s after‑tax expected return, I’ll send $300 extra principal biweekly; otherwise I’ll max Roth/401(k) and invest the rest.” Put it in your notes app, sign it, and automate the transfers.

Anyway, run the 20‑minute check once, then stop tinkering. Markets will wobble, headlines will shout, and your rule will do the boring work. That’s the goal.

Frequently Asked Questions

Q: How do I decide, in 2025, whether to put extra cash into my mortgage or invest it?

A: Stack it up apples-to-apples: your after-tax mortgage rate vs your after-tax, risk-adjusted expected return. If you don’t itemize, your mortgage rate is the hurdle. So a 6.75% loan is a sure 6.75% “return.” If you can’t reasonably beat that by ~1-2% after taxes and volatility, take the guaranteed win. Shorter horizon? Prepaying looks even better, because certainty starts to matter more.

Q: What’s the difference between paying down a 6.75% mortgage and keeping the money in T‑bills or cash?

A: Paying down principal “earns” your mortgage rate, here, 6.75%, after tax if you don’t itemize, and it’s risk-free for the life of the loan. T‑bills and high‑yield cash were ~5% in 2023-2024; yields are lower this year but still decent by post‑2008 standards. T‑bills are liquid and have price stability, but you’ll owe federal tax on the interest. Mortgage prepayment isn’t liquid, you can’t easily pull it back, so keep 3-6 months in cash first. If your hurdle is 6-7% and cash is closer to 4-5% now, the mortgage usually wins unless you really need flexibility.

Q: Is it better to max my 401(k) match or throw extra at the mortgage?

A: Grab the match first. That’s 100% risk‑free return the day you recieve it, don’t leave free money on the table. Next, keep an emergency fund (3-6 months), then kill any high‑interest debt (think credit cards at 18-25%). After that, prioritize tax‑advantaged accounts (401(k), IRA, HSA if eligible). With the basics handled, compare your after‑tax mortgage rate to your realistic after‑tax portfolio return. If your loan’s 6.5-7.0% and you don’t itemize, prepaying is a strong, guaranteed outcome. If you’re young, diversified, and comfortable with risk, you might invest more, just be honest about after‑tax returns and the stomach churn during drawdowns.

Q: Should I worry about the mortgage interest deduction and taxes when deciding to prepay in 2025?

A: Short answer: yes, but only if you actually itemize. Here’s the thing, most households don’t. IRS data showed only about 13-14% of returns itemized in 2019-2022 after the TCJA changes. If you take the standard deduction, your prepayment “return” is simply your sticker rate. So a 6.75% mortgage is a sure 6.75% after tax. If you do itemize, use your after‑tax rate: mortgage rate × (1, marginal tax benefit). Example: 6.75% rate, 24% federal bracket, limited SALT deductions due to caps. If your full interest is deductible (not always true), your after‑tax rate might be roughly 5.1%. That’s the hurdle your after‑tax, risk‑adjusted investment returns need to beat. Note the caveats: state taxes may or may not help; the SALT cap can limit itemizing; and the TCJA rules are scheduled to sunset after 2025 unless extended, which could change who itemizes next year. Practical playbook: 1) Confirm whether you itemize this year; 2) Calculate your true after‑tax mortgage rate; 3) Compare to your realistic, after‑tax expected portfolio return; 4) Maintain liquidity, 3-6 months cash before prepaying; 5) Check your note for any prepayment penalties (rare on conforming loans, but look). Look, certainty has value. If your after‑tax hurdle is 6%+ and your investment plan can’t confidently clear it, paying down principal is a clean, no‑drama win.

@article{mortgage-payoff-vs-investing-a-guaranteed-return,
    title   = {Mortgage Payoff vs Investing: A Guaranteed Return},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/pay-off-mortgage-vs-investing/}
}