I have cash I can either put towards my mortgage, or invest in the stock market. I live in the US, and have no other debts.

My mortgage interest rate is fixed at 3.5%. No penalties on pre-payment. In looking at some funds from vanguard, it looks like the annual return ranges from something like the "Vanguard High Dividend Yield Index Fund Investor Shares" is giving returns of > 6% a year. Here's a screenshot of their info page:

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Even something like their bond index is beating 3.5% on average: https://personal.vanguard.com/us/funds/snapshot?FundId=0084&FundIntExt=INT

What should I be looking at to determine if it's better to put the extra money towards the mortgage, or towards one of these funds?


  • To make a fair comparison, you should also consider the market value of the property that you are paying the mortgage on. Returns on real estate (especially one's primary dwelling) are not as easily realized as on stocks or other similar investment instruments, but it is something to keep in mind.
    – heropup
    Nov 4, 2016 at 18:01
  • 2
    If the money had already been applied to your mortgage, would you borrow extra against your house to invest in stocks? Asking the question this way may help you understand your level of tolerance for the risk involved here. Nov 4, 2016 at 19:44
  • @heropup - the return on the property has nothing to do with this question. OP has 2 choices, pay the mortgage faster, or do something else. He is not asking whether buying a house is a good investment, that ship has sailed. Nov 5, 2016 at 1:35
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    OP - you've made a humorous typo. The figures you give for the gains of the funds, are last year's figures. Can you please edit and put in next year's figures.
    – Fattie
    Nov 5, 2016 at 11:44
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    @WesleyMarshall - this is a false comparison. A family saves until June, and is ready to book their summer vacation. Wife asks "would we take an equity loan and borrow to see Disneyland?" This spirals down to every cent of discretionary spending, and suggests that as long as anyone owes a dime, they eat rice and beans and wear sweaters in the winter. Nonsense, right? Nov 5, 2016 at 18:21

3 Answers 3


It's six of one a half dozen of another.

Investing the cash is a little more risky. You know exactly what you'll get by paying down your mortgage. If you have a solid emergency fund it's probably most advisable to pay down your mortgage.

If your mortgage is 3% and your investment makes 3.5% you're talking about a taxable gain of 0.5% on the additional cash. Is that worth it to you?

Sure, the S&P has been on a tear but remember, past results are not a guarantee of future performance.

  • Exactly. In the described case, paying down the mortgage would be a guaranteed 3%; the market may return more or less, and you need to decide what your expectations are and how much you value certainty. This also depends on your timeframe; long-term stock market results are less risky than short-term, so when you are going to need the money plays a role. I deliberately took a mortgage so I could leave money in my investments, but that isn't the right answer for everyone, and I did decide to split my bet by making a 50% down payment on the house and only mortgaging the other half.
    – keshlam
    Nov 4, 2016 at 18:11

One advantage of paying down your mortgage is that if tough times show up in a year or two, you might be in a better position to get a home equity line of credit or similar; where if the money was in a stock/index fund, and the economy was in a nosedive or dip, you may not have much left in the investment. A cynic may reword your question as "Should I pay down my mortgage or buy lottery tickets?"


the math makes sense to invest instead of paying down, but...

how much would you borrow at 3.5%, to invest the money into the stock market?

It's the same question, just turned around.

  • 1
    No, it sure isn't, see my comment on OPs question. More, a rhetoric question is better posted as a comment. Nov 5, 2016 at 18:26

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