Paying Down Your Mortgage vs Investing: The Question Isn’t Just About Math

Few personal finance debates are as persistent as this one:

Should you pay down your mortgage faster, or invest the extra money instead?

The standard advice goes something like this: If your investment returns are higher than your mortgage rate, you should invest the difference.

On paper, that sounds perfectly logical. In real life, it’s far more complicated.

The Mathematical Argument Is Only Half the Story

Yes, over long periods, stock markets have historically returned more than most mortgage rates. But investing comes with volatility, uncertainty, and emotional strain. Mortgage payoff, on the other hand, delivers a guaranteed, permanent return in the form of interest you never have to pay again.

A paid-off house:

• Lowers your monthly cost of living

• Reduces financial stress

• Increases career and lifestyle flexibility

• Provides real security during downturns

Those benefits don’t show up neatly in a spreadsheet — but they matter.

The Behavioral Reality Most People Ignore

Here’s the uncomfortable truth:

Many people who argue that investing the excess is better don’t actually invest the excess.

They keep the mortgage, enjoy the lower payment, and the “extra” money quietly disappears into lifestyle creep, subscriptions, upgrades, and small indulgences.

In theory:

“I’ll invest the difference.”

In practice:

“I meant to invest, but the money just kind of went away.”

Paying extra toward your mortgage forces discipline on you. Investing requires you to discipline yourself. The reality is, for many people, forced discipline wins.

The Tax Detail Most People Miss

The above discussion is still not breaking new ground. However, there is one important consideration that I don't see discussed much when this topic is on the table.

One important nuance that’s often overlooked:

Investment returns are taxable. Mortgage interest savings are not deductible.

So the true comparison isn’t your mortgage rate versus the market’s headline return — it’s your mortgage rate versus your after-tax investment return. For many households, that narrows the gap more than expected.

It doesn’t mean investing is wrong — it just means the decision deserves more nuance than most online or kitchen table debates allow.

Let's look at an example. Let's say you have an extra $200/month available, or $2400/year. You can either pay down your mortgage or invest the income. Now, it's important to use fair mortgage rates and investment growth rates, otherwise you can just skew the numbers to favor your position.

Mortgage Rate: Most 5-year mortgages are going around 4.7%-4.8%.

Investment Return: Obviously, this depends on what you invest in; but to be a tit-for-tat comparison, you should use something something that fairly safe (not speculative like stocks). Let's give a 9% growth rate.

Tax Rate: This is also complicated because you could shield the growth in an RRSP or TSFA. If you have contribution room, you should definitely take advantage of this. However, let's say you are already maxing out these options. If so, you'll pay 25-35% income tax on your investment growth (depending on your personal tax bracket).

In this case, you might earn 9% on your investment, but 30% of that would go out the door in taxes, leaving you with about 6% in your hand. When compared to the 4.8% mortgage interest you are paying, you are only coming ahead 1.2%, which is about $30/year on your $2400/year.

So yes, you'd come ahead $30/year if you invested your excess versus paying down the mortgage balance. Is this enough to justify the change? That's up to you!

If you were able to shield the 9% growth in a TFSA, your gain would be $100/year (9% x $2400). Is this enough to justify the change? That's up to you!

So Which Is Better?

The honest answer: it depends.

Paying down your mortgage is:

• A guaranteed return

• Risk-free

• Emotionally comforting

• Life-simplifying

  
  

Investing is:

• Potentially higher return

• More liquid

• Better for long-term wealth

• More volatile

  
  

For many people, the smartest move is a hybrid approach — investing consistently while also accelerating mortgage payoff.

The Bottom Line

This decision isn’t just about maximizing returns. It’s about aligning your money with your temperament, discipline, and priorities.

If you value certainty, freedom, and simplicity, paying down your mortgage is a powerful financial move.

If you value growth, liquidity, and long-term compounding — and you’ll actually invest the difference — investing can build more wealth.

Just be honest with yourself about which person you really are.

Because the best plan is the one you’ll actually follow.