Overview of Should You Pay Off Your Mortgage or Invest? (Best Choice for FIRE)
This BiggerPockets Money episode (hosts Mindy Jensen and Scott Trench) analyzes whether extra cash should be used to pay down a mortgage or invested instead — especially for those pursuing FIRE. The show presents the math, tax nuances, psychological factors, and a new interactive calculator Scott built to model realistic, customizable scenarios.
Key takeaways
- Historical long-term math generally favors investing over prepaying a mortgage (e.g., a Journal of Financial Planning study found investing 1963–2019 beat paying a 6% mortgage, producing ~50% more wealth).
- Practical answer depends heavily on assumptions: expected future stock returns (and their timing), taxes, mortgage rate, mortgage balance relative to the standard deduction, time horizon/age, and personal risk tolerance.
- Taxes and itemized deductions can flip the result. Large mortgage balances that push you to itemize (vs. taking the standard deduction) can make keeping the mortgage relatively more attractive.
- Psychological comfort matters: a paid-off mortgage gives peace of mind and simplifies retirement (reduces the income your portfolio must produce). If you can’t sleep with the debt, paying it off is a valid choice.
- Use scenario analysis — vary returns, tax rates, loan size, and retirement timing — rather than accepting a single rule of thumb.
The calculator (what it models)
- Location: BiggerPockets Money mortgage calculator (linked on their site; they describe it as free and in beta).
- Key inputs it models: mortgage balance, interest rate, loan term, extra monthly payment, filing status, expected investment returns (with multi-phase assumptions), taxes on investment gains (editable), and retirement timing.
- Exports results as CSV so you can check math and run deeper analysis. Scott asks users to report bugs to scott@biggerpocketsmoney.com.
Important scenarios and examples discussed
- Example A: $750,000 mortgage at 6.25%, $2,500/month extra. Because that large balance generates ~ $46k interest (exceeding standard deduction in their example), investing often wins in scenarios with reasonable equity returns — but results flip with lower projected stock returns or different taxes.
- Example B (payoff wins): High-income family, $350,000 balance at 6.25%, conservative near-term stock-return expectations and higher marginal tax — paying off the mortgage was better.
- Example C (invest wins): $350,000 remaining at 2.5% with a long but sensible investment return path (e.g., 6–9% phases) — investing clearly wins.
- Age/horizon examples: Young investors (long horizon, higher equity allocation) usually fare better investing; near-retirees may favor paying the mortgage to simplify withdrawals and reduce required portfolio income.
Tax & deduction nuances that matter
- Standard deduction vs. itemizing: If mortgage interest + other itemized deductions exceed the standard deduction, keeping the mortgage can give a tax benefit that changes the comparison. Scott used a sample standard deduction of ~$31,400 (2026 projection) and highlighted the $750k mortgage interest cap rule.
- Capital gains / investment taxes: The calculator uses a default blended tax on gains (20%) but this is adjustable; higher tax rates on gains reduce the advantage of investing.
- Marginal income tax brackets influence both the effective cost of the mortgage (after tax) and the tax drag on investment returns.
Psychological & retirement-impact factors
- Peace of mind: Some people strongly prefer having no mortgage regardless of the math — that’s legitimate and can be prioritized.
- FIRE-specific benefit: A paid-off mortgage lowers the amount your FIRE portfolio must produce (no monthly mortgage payment), which can enable retiring sooner or make the 4% withdrawal rule work more comfortably.
- Volatility tolerance: If large temporary market drops would cause you to sell or panic, that lowers the real-world expected benefit of investing versus the certainty of paying down debt.
Practical recommendations / action items
- Run the calculator with your real numbers: mortgage balance, rate, extra payment potential, filing status, and honest return/tax assumptions. (Find it on BiggerPockets Money; export the CSV.)
- Test multiple scenarios: conservative near-term returns, long-term averages, different tax rates, and alternative mortgage balances (including refinance/cash-out cases).
- Consider your time horizon: longer = more favorable to investing (all else equal). Shorter or retirement-imminent = consider paying the mortgage.
- Factor in non-financial priorities: peace of mind, operational simplicity in retirement, and risk tolerance. If debt causes stress, paying it off can be the right decision.
- If you want rigorous comparisons: include taxes, itemization effects, and phased return assumptions rather than a single flat return.
Notable quotes & quick rules of thumb
- “If you ignore taxes and noise, you’ll have more wealth over a long period of time if you invest rather than pay off your mortgage.” — (summary of Scott’s point)
- “Can you sleep at night with this mortgage?” — (Mindy) — a simple test for the psychological side of the decision.
- Rule of thumb: run the numbers. There’s no one-size-fits-all answer — small changes in returns, tax treatment, or loan size can flip the optimal choice.
Resources & contact
- Mortgage calculator (free, beta) — see BiggerPockets Money site (search “mortgage calculator” on biggerpocketsmoney.com).
- Feedback / bugs: scott@biggerpocketsmoney.com; Mindy: mindy@biggerpocketsmoney.com.
- The episode references historical return swings (from macrotrends): 2021 +26.89%, 2022 −19%, 2023 +24.23%, 2024 +23.31 — illustrating volatility and the need for durable assumptions.
Bottom line: Use a detailed, personalized scenario analysis (including tax effects and realistic phased returns) and weigh the psychological benefit of a paid-off home against the expected financial upside of investing. If you can’t tolerate the mortgage, paying it off is a perfectly reasonable choice; if you’re comfortable and expect market returns to exceed your mortgage after taxes, investing typically wins over long horizons.