Overpay the Mortgage or Invest?

Spare money can reduce a mortgage or be invested, and the honest comparison is not simply which number is bigger. Overpaying returns exactly your mortgage rate, guaranteed and tax-free in most places. Investing returns an assumption, with risk attached.

This puts both on the same timeline so you can see the gap, and how large it has to be before taking market risk is worth it.

How the comparison works

Both paths are future-value calculations on the same monthly amount. Overpaying compounds at your mortgage rate, because every unit repaid avoids that rate for the rest of the term. Investing compounds at whatever return you assume.

Worked example

Three hundred a month for fifteen years. At a 6.5% mortgage rate the overpayment is worth about 91,100 of avoided interest and repaid balance. At an assumed 8% return, investing reaches roughly 103,800 — around 12,700 ahead, but only if that 8% actually materialises.

The part the numbers leave out

The mortgage return is certain; the investment return is not. A gap of one or two percent is thin compensation for that difference, particularly close to retirement or if losing the home would be catastrophic. Larger gaps, over long periods, favour investing.

Frequently asked questions