Paying off your mortgage vs. investing: Here’s what could save you the most

Aly J. Yale
The Mortgage Reports contributor

Mortgage payoffs vs. stock market returns

Thinking of investing that windfall in the stock market, rather than paying off your mortgage? You may want to think again. A new analysis shows that in most cases, mortgage payoffs create better returns than the stock market — sometimes 10 percent more or higher.

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Should you be paying off your mortgage or investing?

A new analysis from MoneyGeek looks at how historical stock market returns compare to paying off your mortgage, and surprisingly, mortgage payoffs win out more often than not.

According to the study, in the 43 years between 1971 and 2013, mortgage payoffs offered bigger returns than the stock market 60 percent of the time — or 26 out of those 43 years. S&P 500 five-year returns only beat out mortgage payoffs 17 times.

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When looking at 10-year returns, mortgage payoffs won out 63 percent of the time.

As MoneyGeek’s Doug Milnes explains, “Our initial inclination was that the stock market would beat paying down your mortgage, but mortgage paydown proved a stronger contender than we expected.” 

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Results may vary

The returns vary by borrower of course, and their tax scenario, investment length, and timing all play a role.

In fact, according to the study, returns were largely even between the late 1970s and early 90s. Between 1997 and 2007, though — “during the dot-com bubble and the lead-up to the financial crisis,” the report says — mortgage payoffs saw bigger returns 10 times out of 11. During the crisis — 2008 through 2013,  the stock market won out every year.

Milnes says the analysis “was a real lesson in stock market volatility.”

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