With a huge nest egg, paying off mortgage debt seems like a prudent move, especially with a mortgage rate that’s flirting with the 6% mark. Undoubtedly, you could probably score a much better return in the stock market, especially as it kicks into high gear. However, you’re also going to take on quite a bit of risk for a shot at a greater return. And if you’ve got a considerable sum banked, I’d argue that it makes sense to cut down the debt load while still benefiting greatly from continued stock gains.

In this piece, we’ll look at a specific example that involves a person with a massive $5 million net worth and a $500,000 sum left to be paid on their home with a rather hefty 5.875% interest rate.

Key Points About This Article

• Paying off the mortgage can make sense, given the lofty 5.875% rate.
• However, if stocks have another strong year, such a move may leave one feeling regret. And while a financial adviser can’t predict the future, there’s still value in having them chime in.

Paying off the home can make sense. But beating 6% by investing in stocks is certainly not hard.

Undoubtedly, returns over the next year and decade will be impossible to predict. A solid past few years for stocks, in theory, stands to take away from the returns to be had later on.

That said, it’s tough to gauge just how much America’s economy stands to get a shot in the arm from artificial intelligence (AI) and, eventually, artificial general intelligence (AGI), which seem to be sparking a fourth industrial revolution. In any case, there’s a lot of enthusiasm for all things AI-related right now.

Undoubtedly, stocks may also look just a bit expensive here, but whether the benefits of AI will jolt productivity in a way that justifies the increased pace of gains remains a big question on the minds of many. Instead of making predictions and timing your entry into certain stocks or the S&P 500, the best course of action may be to sit back and enjoy the ride, wherever it takes us.

What’s the better move?

If you’re more of a risk-averse investor who’s a tad older and closing in on retirement, I’d argue it makes sense to consider going for the less risky option. In this case, it’s to use a portion of one’s nest egg to pay down the mortgage debt.

At the same time, if you think you can score a return above 6% elsewhere (that’s not all too unrealistic with the stock market, in my view), staying in stocks and continuing to chip away at the home loan gradually can also make a lot of sense. Additionally, concern over extended valuation multiples and limited runway for stocks stands to bolster the case for paying down the mortgage. After a strong couple of years, taking some profits to pay down such debt isn’t such a bad idea.

At the same time, there are opportunity costs of paying the mortgage rather than staying the course on one’s investments. Consulting a financial adviser may come in handy so they can better gauge your risk tolerance. However, not even they can tell whether stocks will return more than 6% in the new year or even the next three years. As such, I believe there’s no set rule in this particular case.

Perhaps finding some middle ground can be the move that makes the individual the most comfortable. You don’t have to send the mortgage debt straight to zero. In this particular case, it could make sense to put a lump sum to make their debts while mostly staying the course with their long-term investment plan.

The bottom line

There’s a lot of bragging rights that goes into paying off your home entirely. If one wants to prioritize that milestone or has lingering fears about the possibility of a stock market sell-off in 2025 or 2026, paying off the mortgage debt may be the best option.

However, if one is in no rush to pay down debt and is inclined to stick with stocks for the long haul, there’s also nothing wrong with going down the route of markets. As always, we’ll only know the correct answer in the future. And unless you’ve got a crystal ball, there’s just no way to tell with certainty what the right move is.

Ultimately, it comes down to what move would lead you to have the least amount of regret. Would you feel more pained if you paid the mortgage down and stocks soared 20% next year? Or would it hurt more if you stayed in stocks and a painful correction were to hit?

Personally, I’d seek the opinion of a financial pro and make the choice that brings me the most comfort. For some, that’s having a paid-off house. For others, it’s having the highest return possible.

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