Pay off the mortgage or invest?

The guaranteed return

If your mortgage costs 4.5 % a year, each euro you prepay saves 4.5 % in interest, with certainty and, in most countries, without tax on that saving. A risky investment has to beat that after tax and after accounting for its risk to be the better choice.

Compare like with like

It is tempting to compare the mortgage rate with long-term stock returns of 6–8 %. But those returns are uncertain and arrive over decades, with deep falls in between. The like-for-like comparison is with safe assets over the same horizon: bank deposits, money-market funds or short government bonds. When the mortgage rate is clearly above what safe cash earns after tax, by more than about half a percentage point, prepaying usually wins.

For example, with 4.5 % on the mortgage and 2 % on safe cash, prepaying every month instead of saving into cash for a lump-sum payoff saves roughly €1,700 to €3,700 of interest on balances of €60,000–90,000 cleared over two to three years.

When investing can make sense

Even then investing is a bet with a wider range of outcomes, not a sure gain.

• The mortgage rate is low compared with safe yields, as with loans fixed when rates were near zero.
• The horizon is long, ten years or more, and you can hold through crashes.
• You already have an emergency fund and no expensive debt.
• Tax rules favour investing, for example a pension account with tax relief.

Short goals: stocks rarely help

If the goal is to be debt-free in two or three years, the volatility of stocks matters more than their average return. Simulations in our methods research suggest that putting that money into stocks shortens the median payoff by only a month or two, but adds a chance of roughly 27–32 % of finishing later than with cash. Real crashes such as 2000–02, 2008 and 2022 were deeper than many models assume.

Before you prepay

• Keep three to six months of expenses in cash.
• Read the loan contract: fees, minimum amounts, and whether prepayment shortens the term or lowers the instalment. In the EU, consumers have a right to repay early, but the lender may ask for fair compensation.
• If you plan to sell the property soon, the sale repays the loan anyway: the choice is about interest saved versus keeping cash available.
• Once the mortgage is gone, redirect the whole monthly payment into long-term investments.