Should I pay off my mortgage or invest the money?
The rule is interest rate arbitrage. If the money will earn more than the debt costs you, invest it. If it will not, pay the debt down. That holds the vast majority of the time. It gets closer than it looks when the two rates are near each other, because the debt charges the same rate every year and the market does not, so the sequence of returns tips a close call toward paying the debt off. The limit is liquidity: never at the expense of your emergency fund.
Most people asking this have already done the math in their head, and the math they did was right. If the interest you'd earn on the money is more than the interest you'd pay on the debt, you should probably invest it instead of paying the debt off. That goes for any debt. A mortgage is just the most common example.
That's interest rate arbitrage, and it's what wealthy people do all the time. Borrow at one rate, earn at a higher one, keep the difference. The vast majority of the time it really is that simple.
Why a close call tips toward the debt
A 7% interest rate on the debt is 7% every single year. It doesn't have a bad year, and it doesn't have a good one.
Invest that same money and you might assume something like 10.5% over long stretches. It's almost never actually 10.5%. It's positive 27 one year and negative 22 the next. So the sequence of those returns matters, and the math isn't as clean as the rule sounds. When the assumed return and the debt rate are close to the same, my bias goes toward the debt, because the debt's number is the certain one.
The argument for keeping the debt
Picture two people on a couch, both with a net worth of exactly zero. The one on the left has a million dollars of investments and a million dollar mortgage at the same rate. The one on the right has no assets and no liabilities at all.
The spreadsheet can't tell them apart. And the woman on the left has a whole lot more freedom, because she can sell something, move money, or absorb a surprise. That's a very strong argument for not paying debt off. The debt bought her the assets, and the assets bought her the options.
Where I land
All other things equal, I do have a bit of a bias toward paying debt off when the rates are close. But not at the expense of running out of liquid capital, and not at the expense of your emergency fund. A paid-off house is real money you can't reach on a Tuesday.
The longer version, including the couch analogy in full and what the mortgage interest deduction does or doesn't do for you, is here: Should I pay off the mortgage or invest?
If you're sitting on cash and staring at a balance, that's worth an hour with someone rather than a guess.
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