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Pay the mortgage off fast, or invest the difference?
Two people buy the same house with the same mortgage and spend exactly the same each month. One clears the loan as fast as they can. The other takes the longest term going and invests the gap. Put in a mortgage rate and a market return you believe in, and see who retires with more, by how much, and when paying it off is still the right call.
By The Off-Duty Economist Last reviewed Free, no sign-up, nothing stored
The short version
- The question was never "how fast can I be mortgage-free?". It is "what return does each pound earn, and can I get at it when I need it?".
- On a 2021 mortgage rate of 1.73% and the long-run US market average of 10.83%, investing the difference ends with about twelve times the pot. Both people own the house outright at the end.
- The whole gap comes from the spread between the two rates. At a 2026 mortgage rate it shrinks a lot. When the market pays less than the mortgage costs, it flips and paying off wins.
- The arithmetic is only half the answer. Tax wrappers, an emergency fund, job security and how you sleep decide whether Person B's plan works for you. The second half of this page is about that.
Which would you pick?
You're buying your first home with a mortgage at . Same house, same loan, three ways to pay for it. How quickly would you want to be mortgage-free?
Two people, same house, same cash out of pocket
Both borrow at , both have years to retirement, and both spend exactly a month on house-plus-savings, every month, until they retire. The only difference is where the money goes. Change any number in the calculator below and this whole page updates.
-year mortgage: a month to the bank.
Mortgage-free at year , aged .
Years to : the same a month goes into .
-year mortgage: a month to the bank.
The other a month goes into a stock-market index fund, from day one.
Mortgage-free at year , aged .
Run it with your own numbers
The defaults are the worked example: a 2021 fixed rate and the average US stock-market return from 2001 to 2025. Drag anything. Nothing you type is sent anywhere.
Savings and investments over time
| Year | Age | A owes | A's pot | B owes | B's pot | B could clear the mortgage? |
|---|
Same money in, very different money out
| Over years | Person A | Person B |
|---|---|---|
| Cash out of pocket | ||
| Mortgage interest paid | ||
| Put into savings or investments | ||
| Return earned on it | ||
| Pot at (plus a mortgage-free home) |
Why the gap is so big
Time in the market
Rate of return
It is leverage
Where the two rates come from
US data, 2001 to 2025, from Kenneth French’s data library. US figures are used because they are free, long and clean. UK numbers tell the same story with a smaller gap.
Source: Kenneth R. French Data Library, Fama–French factors (RF and Mkt), annual, 2001–2025. Averages are arithmetic means.
What if the market does worse?
Pot at retirement, for every market return
Mortgage rate and terms as set aboveShow as a table
| Market return | Person A | Person B | B ÷ A |
|---|
Your mortgage rate against the market
Each cell is Person B’s pot divided by Person A’s, at retirement, for that mortgage rate and that market return. Terms, horizon, fees and A’s choice follow the calculator. Click a cell to load it into the sliders.
Does the mortgage term matter?
Pot at retirement by mortgage term, same monthly budget
Everyone invests the gap, and the whole budget once the mortgage endsBoth lose their job at . Who is in trouble?
The usual argument for paying off fast is safety. Test it. Pick the year the income stops and how far the market falls that same year.
What B does next
A's outcome is near-certain. B's is a distribution
A smooth 10.83% a year never happens. Real markets lurch. This runs Person B’s plan 1,000 times with yearly returns drawn at random around your average, and shows the spread of where the pot could land.
Person B's pot: the range of outcomes
1,000 random runs, same market for both peopleFive things before you copy Person B
1.73% was a 2021 mortgage rate
10.83% is an average, not a promise
Five losing years in 25, including −36.65% in 2008. A's outcome is near-certain. B's is a distribution, and the fan chart above shows how wide it is.
Arithmetic vs compound average
Inflation
Tax and discipline
B's result assumes an ISA or pension wrapper, and years of never raiding the pot. That includes the month you are made redundant and the market is down a third. Most people don't manage that, and a plan you won't stick to is worse than a simpler one you will.
When paying it off is still the right call
Person B wins on the worked example’s numbers. That does not make B’s plan right for you. Any one of these is a good reason to overpay the mortgage instead, and several of them are about you rather than the market.
- 1Your mortgage rate is close to the return you can expect
- 2You'd be investing outside an ISA or pension
Dividend and capital gains tax on a general account narrow the spread. Mortgage interest, by contrast, is paid out of taxed income with no relief. Use the £20,000 ISA allowance first. From April 2027, under-65s can put only £12,000 of it into cash ISAs, which leaves the rest for a stocks and shares ISA.
- 3You have no emergency fund
Overpayments are gone the moment you make them. Three to six months of essential spending in easy-access cash comes before either plan, so that a boiler or a redundancy never forces you to sell investments at the bottom.
- 4Your income is unstable
B's safety in the stress test comes from a large, liquid pot. In the early years that pot is small, and a job loss at year five looks very different from one at year twenty-five. Run the stress test with an early year and see.
- 5You would not actually invest the difference
The plan only works if goes into the fund every single month, including the ones when the news is terrible. If the lower payment would quietly become a nicer car, the mortgage overpayment is the better forced saving.
- 6You have more expensive debt
A credit card at 20% or car finance at 9% beats any mortgage overpayment and any likely market return. Clear those first, then come back to this page.
- 7Your deal punishes overpaying, or your pension is unmatched
Most fixed deals allow overpayments of about 10% of the balance a year before early repayment charges bite, so check the small print before planning a 15-year sprint. And if an employer will match pension contributions you aren't making, that matched money beats both plans on this page.
- 8Being debt-free matters more to you than the expected extra
That is a legitimate preference, not a mistake. The point of the calculator is that you can now put a price on it: at your numbers, the peace of mind costs about at retirement.
A sensible order to do things in
- Clear expensive debt
Credit cards, overdrafts, buy-now-pay-later, car finance. Nothing on this page beats their interest rate.
- Build the emergency fund
Three to six months of essential spending in easy-access cash, inside a cash ISA where you can.
- Take the full employer pension match
Matched contributions double your money before any market return. Pension money is locked away, so it does not replace the emergency fund.
- Then compare the spread
Your mortgage rate against the return you expect after fees and tax. Small or negative spread: overpay. Clearly positive spread, a wrapper to use and the discipline to invest every month: invest the gap. In doubt: split it.
- Keep it reversible where you can
An offset mortgage or a deal with borrow-back keeps overpayments within reach. Money in a fund can be sold. Money in bricks needs a remortgage or a sale.
The middle paths
Offset mortgage
Savings sit against the loan and cancel interest at the mortgage rate, tax-free, while staying available. A guaranteed return of your mortgage rate with the liquidity of cash. The price is usually a slightly higher rate.
Split the difference
Overpay some, invest some. You give up part of B's expected gain in return for a shorter mortgage and a pot that is still there in a bad year. Most real households end up here.
Long term, voluntary overpayments
Take the 40-year term for the low required payment, then overpay when you can. You keep the option to stop in a hard year, which a 15-year contractual payment never gives you.
Invest first, clear at the end
B's option 1 from the stress test. Invest throughout, and if the pot comfortably exceeds the balance later, pay the mortgage off in one go. You have been both people by the end.
Run it yourself, then tell me where I'm wrong
Don’t take the page’s word for it. Each button sets the calculator up for a question worth answering. Break the result, then argue with it.
Make it 2026
Replace 1.73% with a mortgage rate you can actually get this week. Does B still win? At what mortgage rate does B stop winning?
Three market scenarios
Rerun B at 9.16% (the compound average), 5% (bad) and 3% (worse). Check the pot at and at for each.
Job loss at 50, your way
Both lose their income and the market falls 30% that year. What does each person do? Which would you rather be, and what number convinced you?
The fair fight
The worked example's Person A keeps cash. Let A invest after the mortgage too, and see how much of the gap is the rate and how much is the fifteen years of lost compounding.
Your verdict, in three lines
How the calculator works
The sums
- The monthly payment comes from the standard repayment formula at the yearly rate divided by twelve. The balance amortises month by month.
- Savings and investments compound monthly at the yearly rate divided by twelve, with money added at the end of each month. That is the convention most online calculators use.
- Both people spend exactly the same each month: Person A’s mortgage payment. B invests the gap. Once either mortgage ends, that payment carries on into savings or the fund until retirement.
- Fund costs come straight off the monthly return. Today’s money divides every figure by inflation, compounding monthly.
- The break-even return is found by search: the market return at which B’s pot equals A’s.
What it leaves out
- Tax. It assumes an ISA or a pension. Outside a wrapper, B’s return is lower and the spread narrower.
- House prices. Both people own the same house, so growth or falls cancel out of the comparison.
- Rate changes. The mortgage rate is fixed for the whole term, which no UK deal does. Treat it as an average.
- Real returns, except in the distribution section, where yearly returns are drawn from a lognormal distribution with your average and volatility, 1,000 runs, the same market for both people. It is an illustration of spread, not a forecast.
- Nothing you type is sent anywhere or stored. The sums happen in your browser.
This page shows illustrations based on the numbers you enter. They aren't forecasts, and they aren't financial, investment, tax or mortgage advice, or a recommendation to borrow, repay, buy, sell or hold anything. Real returns, rates and charges will differ, and you may get back less than you put in. Your home may be repossessed if you do not keep up repayments on your mortgage. Read the full disclaimer.