Have you ever heard the phrase “opportunity cost?”
It’s a simple concept that suggests that, by making one decision with your money you’re not able to use that money for another reason—even though it may be just as compelling.
There is no right or wrong answer with opportunity cost. You can benefit from both ideas. You just must make a decision based on the information you have.
For example, say you come into a windfall of money. Some people ask themselves, “Should I pay off my mortgage, or should I invest the money?” There may be no right or wrong answer to this question. You could benefit from either decision in the long run. But if you choose one choice today, the money won’t be available for the other choice tomorrow.
Here’s how we guide people through the “opportunity cost” decision of paying off a mortgage or investing the money.
It’s Not All or Nothing: When it comes to personal finances, too often people think that decisions are all or nothing. Sometimes, the best decision can be a split decision. In this instance, you can use a portion of the money to pay down debt while pursuing an investment opportunity with the other portion. Or perhaps you can take a “ladder” approach, alternating between paying down debt one month and investing the following month.
“Build homes and plan to stay. Plant gardens and eat the food they produce.” Jeremiah 29:5
Emotional Decision: For some, the idea of no longer having a mortgage overrides all other factors. It’s emotional, and that’s OK. A home is the largest financial commitment most people ever make, and some just want to pay off their mortgages to gain a greater sense of control over their personal finances.
“Don’t become a slave to your lender,” writes Mick Owens, author of the popular book Diamond of Life: The Five P’s of Success and Significance. “Use discretion. A house doesn’t need to be massive or expensive to become a home or a safe sanctuary for your family.”
Add It Up: The analytical “left brain” thinkers often say they don’t like the underlying math with mortgages. A person who borrows $320,000 at 6.6% for 30 years ends up paying more than $400,000 in interest over the life of the loan. Some people look for any opportunity to manage that total interest.2
Bottom Line: A wide range of factors should be considered when answering the question, “Should I pay off my mortgage or should I invest the money?” For example, paying off your mortgage means that you can no longer take a tax deduction on your mortgage interest. How will that change your taxable income? Investing the money might be a consideration if you’re concerned about whether you have saved enough for retirement.
There’s no easy answer. But by breaking down the decision into manageable chunks, you can come to a conclusion that works best for you.
- StLouisFed.org, August 2025
- AARP.org, 2025
