Mortgage vs. Investing: What's the Better Choice for You?

This is a question I've spent a lot of time thinking about.

Should I pay off my mortgage faster, or invest that extra money instead? After all, the stock market historically returns more than mortgage interest costs, right?

Well... it's not that simple.

Let's break it down — the numbers, the psychology, and the practical reality.

The Tempting Math

Let's run the numbers honestly.

The stock market has historically returned around 8–10% annually. Your mortgage today costs about 6–7%. So logically — invest and you'll come out ahead, right?

It's... not that straightforward.

Remember 2021? Mortgage rates hit an all-time low of 2.65%. Today they're hovering around 6.2%. That difference is brutal.

$400K Mortgage	Rate 3%	Rate 7%
Monthly Payment	$1,686	$2,661
Total Paid	$607,107	$958,055
Interest Paid	$207,107	$558,055

The difference? $350,000 in extra interest. For the same four walls.

Interest comparison at different rates Visualization: bar chart comparing total mortgage costs at 3%, 5%, and 7% rates

The American Reality: Housing Is Expensive

Look, I'm not going to sugarcoat this. The situation isn't pretty.

The US now ranks third worst among developed nations for housing affordability decline since 2015. The median home costs 4.6 years of household income nationally. In LA? That jumps to 12.2 years. In San Jose? 10.5 years.

Housing affordability by major US city Visualization: horizontal bar chart — years of income needed to buy a home in major US metros

The numbers hit differently when you zoom in. The median existing home now costs $409,200. At current rates, that's a monthly payment around $2,400 — before taxes and insurance.

Middle-income households earning $75,000–$100,000? They can now afford just 21% of listings. Back in 2019, it was 49%.

Why a Mortgage Is Better for Most People

1. Forced Savings — Your Secret Weapon

Here's the thing economists love to ignore.

Most people can't invest consistently on their own.

A mortgage forces you to. Every month, money leaves your account — and you have no choice. It's like an automatic transfer you can't cancel.

Behavioral economists call this "forced savings." And it works incredibly well.

For most American households, their home is their only real wealth. And it's not a coincidence. It's because they had to pay that mortgage.

The data backs this up: median net worth for homeowners is $400,000. For renters? $10,000. That's a 40:1 ratio — and it's nearly doubled since 1989.

If you had to "voluntarily" send $1,500 to your brokerage every month instead of making a mortgage payment... how many months before you'd find a reason to skip it? New iPhone, vacation, car repair... there's always a reason.

2. You Live In Your Investment

When you invest in an index fund and the market drops 30%, you see it every single day. You open your app, see red numbers everywhere, and your brain screams: "Sell! Save yourself!"

But when your home's value "drops"?

You don't really know. And even if you did — where would you move? You're still living there, still making the same payment, still cooking breakfast in the same kitchen. Your home protects you from yourself.

With investments, it's different. When markets crash, most people panic and sell. And that panic is exactly why the average investor earns far less than the market itself.

How much less? DALBAR's research shows that in 2024, the average equity investor earned 16.5% while the S&P 500 returned 25%. That's an 8.5 percentage point gap — in a single year. Over 30 years, average investors have earned roughly 3.7% annually while the market returned over 10%.

3. Psychological Peace of Mind

Owning your home outright means:

no one can kick you out
you're not worried about making the payment
you have a roof over your head — no matter what happens

That feeling of security has enormous value that no spreadsheet can calculate.

Rent + Invest: Does It Actually Work?

The theory sounds great. Instead of a $2,500 mortgage payment, you pay $1,800 in rent and invest the $700 difference. (Plus all those repair costs you'd put into your own place but won't spend on a rental...)

After 30 years at 8% returns, you'd have nearly $1 million.

But here's the thing...

How many people actually invest that difference? And how many buy the new iPhone, take that vacation, or just "treat themselves"?

And even those who do invest — how many will panic-sell during the next crash?

Investor Panic

The behavioral gap is real: investors pulled money out of equity funds every single quarter of 2024 — with the biggest withdrawals happening in Q3, right before a major rally.

When to Buy vs. When to Invest?

After years of thinking about this, I've come to a pretty simple conclusion.

Buy when:

you know where you want to be for the next 7–10 years
you have stable income and relationships
you need that "forced discipline"
you can find something reasonable outside major coastal metros

Invest when:

you don't know where you'll be in 3 years
you have iron willpower and won't panic-sell
you're in SF/NYC/LA and don't want a 40-year debt sentence
you can actually invest the difference between rent and a mortgage payment — every single month

My Take

Personally, I believe that for most people a mortgage is the better choice. Not because the math is on its side. But because the psychology is. A mortgage forces you to save. Every month. No excuses. And after 30 years, you own a paid-off home. Maybe not the best investment in the world — but you have a place to live. And that’s not nothing.

If I were advising my younger self? It’s hard to say whether I would change the decisions I made in this regard…

The Bottom Line

Math says: invest. Psychology says: buy.

The truth? It depends on you. Your discipline, your life situation, and where you want to be in 10 years.

But one thing I know for certain — the worst decision is doing nothing. Letting money sit in a checking account, waiting for the "right time."

The right time is now.

Have questions? Email me at vymerd@gmail.com.