# Coast FIRE vs Paying Off the Mortgage: Where Should the Extra $500 Go?

> Extra cash toward the mortgage or into investments? How each choice moves your Coast FIRE date and FIRE number, and the rates where the answer flips.

Source: https://mycoastfire.com/blog/coast-fire-vs-paying-off-mortgage
Last updated: 2026-09-23

An extra mortgage payment is a guaranteed return at your loan rate. Whether that beats investing depends mostly on the rate, and on how many years the loan runs into your retirement.

If your mortgage rate is under about 6%, investing extra cash will usually get you to Coast FIRE sooner and leave you with more at retirement. Above about 7%, paying down the loan is a guaranteed return that stocks struggle to beat once you account for taxes and risk, and in between it’s close enough that your own comfort with risk should decide.

There’s also a Coast FIRE wrinkle that most mortgage calculators skip. Your loan only affects your number for the years it overlaps with retirement, and that’s often less than people assume.

## What does an extra mortgage payment actually earn?

Every extra dollar of principal earns exactly your mortgage rate. Put $500 toward a 6.5% loan and you stop paying 6.5% a year on that $500 for as long as the loan would have run. That return is guaranteed, it doesn’t drop in a bad year, and for most people it’s effectively after tax, because most people don’t itemize (more on that below).

The market pays more on average, with no guarantee. This site’s calculators assume 7% a year before inflation, which is a fair long-run planning figure for a mostly-stock portfolio and not a promise. Some decades deliver much less. If the money sits in a taxable brokerage account, you also owe tax on dividends each year and on gains when you sell, so you keep less than 7%.

So you’re comparing a certain rate with an uncertain, possibly taxed 7%. Rate is the first thing to look at.

Ignore one number while you think about it. Lender payoff calculators love to show the interest you’ll save. In the example below, an extra $500 a month saves $179,759 of interest over the life of the loan. That sounds decisive, but it leaves out what the same $500 would have earned somewhere else, which is the entire question.

## Erin’s $500 a month, two ways

Erin is 40, has $250,000 invested and puts $2,000 a month toward retirement. She wants to stop working at 65 and expects to spend $50,000 a year then, not counting the mortgage payment itself. Property tax and insurance are already inside that $50,000. She just took out a $300,000, 30-year mortgage at 6.5%, so her principal and interest come to $1,896 a month until she’s 70.

She has another $500 a month to put somewhere. She can invest it, bringing her contributions to $2,500, or send it to the lender.

First, how to count the mortgage in her number. The easy mistake is to add the payment, $22,754 a year, to her retirement spending. At a 4% withdrawal rate that pushes her FIRE number to $1,818,861, and the calculator says she never reaches Coast FIRE before 65. That’s wrong, because the payment is fixed and it stops at 70. When she turns 65 she’ll owe $96,912, about $46,286 in today’s dollars. The fair way to count it is to add that balance to her FIRE number, as if she paid the loan off on her last day of work. That’s what the “invest” column does below.

|  | Invest the $500 | Prepay the mortgage |
| --- | --- | --- |
| Monthly investing | $2,500 | $2,000 |
| Mortgage paid off | At 65, from the portfolio | After 17.5 years |
| FIRE number at 65 | $1,296,286 | $1,250,000 |
| Coast FIRE number today | $500,077 | $482,221 |
| Coast FIRE reached at | 50 | 52 |
| The $500’s result at 65, today’s dollars | $140,707 | $133,798 |

The last row follows only the extra money, assuming Erin keeps both habits going to 65. In both paths she puts the same $2,396 a month toward the mortgage and the extra money combined. The prepay path invests that whole amount once the house is paid off. The invest path subtracts what’s still owed at 65.

Investing gets her to Coast FIRE about two years sooner, and she ends up ahead at 65 by $6,909, which is close to a tie after 25 years. The Coast gap is larger than the wealth gap because Coast FIRE only counts the portfolio. The prepay money sits in the house, where it can’t compound toward her number.

Erin's prepay path

Change the monthly amount to $2,500 to see the invest side. The small addition for the loan balance isn’t included there.

[Open the calculator with these numbers](https://mycoastfire.com/?age=40&spend=50000&assets=250000)

## Where I’d draw the line on mortgage rates

Same $300,000 loan and same extra $500, at different rates. Erin’s prepay path hits Coast FIRE at 52 in every row, because the rate doesn’t touch her portfolio.

| Mortgage rate | Monthly payment | Invest path reaches Coast FIRE at | Ahead at 65 |
| --- | --- | --- | --- |
| 3% | $1,265 | 49 | Investing, by $71,031 |
| 5% | $1,610 | 50 | Investing, by $38,241 |
| 6.5% | $1,896 | 50 | Investing, by $6,909 |
| 7% | $1,996 | 50 | Prepaying, by $4,485 |
| 8% | $2,201 | 50 | Prepaying, by $30,950 |

The break-even sits just under 7%, about where you’d expect, since 7% is the return the calculator assumes. Remember that the 7% is a guess and the mortgage rate isn’t.

I wouldn’t prepay a 3% mortgage. Plenty of people have one: Freddie Mac’s [weekly survey](https://www.freddiemac.com/pmms) put the average 30-year rate at a record low of 2.65% in January 2021. In late September 2026, [Treasury bills](https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2026) paid a little over 4%. When a risk-free Treasury out-earns your mortgage, prepaying loses even to cash.

Between 4% and 6%, I’d still invest, especially while you have unused room in a 401(k), IRA or Roth, where the 7% isn’t taxed every year along the way.

At 6.5% to 7%, which is where new loans are now (Freddie Mac’s average was 6.95% on September 17, 2026), it’s a coin flip on expected returns and a win for prepaying once you account for risk. If your extra money would land in a taxable brokerage account, I’d pay the loan down. If you haven’t filled your tax-advantaged accounts, fill those first. Above 7%, prepay.

## Does the mortgage interest deduction change the math?

Less than most people think, because it only helps if you itemize. For 2026 the [standard deduction](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill) is $16,100 for single filers, $32,200 for married couples filing jointly and $24,150 for heads of household. Your mortgage interest, state and local taxes and charitable gifts have to add up to more than that before the interest saves you anything. Most people don’t get there: according to IRS [Statistics of Income](https://www.irs.gov/pub/irs-soi/soi-a-inpre-id2401.pdf), only 9.5% of returns itemized for 2022.

The 2025 tax law ([Public Law 119-21](https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf)) made two changes that matter here. It made the $750,000 limit on deductible acquisition debt permanent ($375,000 if married filing separately, with the old $1 million limit still applying to debt taken on before December 16, 2017, per [IRS Publication 936](https://www.irs.gov/publications/p936)). It also raised the cap on state and local tax deductions to $40,400 for 2026, reduced for modified adjusted gross income above $505,000, which will push more people in high-tax states into itemizing.

Here’s how it plays out for Erin. In her first year she pays $19,401 of mortgage interest. Say she also pays $9,000 in state income and property taxes, for $28,401 of itemized deductions. As a single filer she clears the standard deduction by $12,301. In the 24% bracket, that saves her $2,952, which brings her 6.5% loan down to an effective 5.5% in year one. Put the same numbers on a married couple’s return and they’re under $32,200, so the interest saves them nothing.

The benefit also shrinks every year, because the interest portion of each payment falls as the balance does. If you do itemize, a rough adjustment is your rate times one minus your tax bracket, applied only to the share of your deductions above the standard deduction.

## Before you send the lender a dollar more

Some money shouldn’t go to the mortgage or the brokerage account yet:

1.  Get your full employer match. Nothing else pays 50% or 100% the day you put the money in.
2.  Pay off credit cards and other high-rate debt. Card accounts that paid interest averaged 22.15% APR in the second quarter of 2026, per the [Federal Reserve](https://www.federalreserve.gov/releases/g19/current/default.htm).
3.  Build an emergency fund of three to six months of expenses in cash.

Liquidity is the part people underrate. Home equity isn’t money you can spend. To get it out you sell the house or borrow against it, and borrowing depends on the lender. The [CFPB notes](https://files.consumerfinance.gov/f/documents/cfpb_heloc-brochure.pdf) that home equity lines generally let the lender freeze or reduce your line if your home’s value falls or your finances get worse, which is exactly when you’d want it.

Prepaying also usually doesn’t lower your required payment. If Erin loses her job at 52 after sending the lender an extra $72,000, the bank still wants $1,896 every month. That same money in a brokerage account would cover more than three years of payments.

This matters more for Coast FIRE than for most plans. The whole point is flexibility: a lower-paid job, part-time hours, a year off. You can’t do those things with money that’s stuck in drywall.

## The case for paying it off anyway

Having said all that, I think a paid-off house before retirement is a good goal, and not only for emotional reasons.

It lowers the income you need while you coast. On the prepay path Erin’s mortgage is gone in her late 50s, so from then on her paycheck has to cover $22,754 a year less than it would on the invest path. That can be the difference between a part-time job being enough and not.

It protects you from bad timing. Withdrawals in the first years of retirement do the most damage if the market falls at the same time, which is called sequence-of-returns risk. With no mortgage, you pull less from the portfolio in those years. And if you plan to pay off the balance at retirement from a traditional 401(k), that withdrawal is taxable income in one year and can push you into a higher bracket. Paying it off gradually from your paycheck avoids that.

Peace of mind is real too. If owning your house outright is what makes you comfortable taking a lower-stress job at 50, that’s worth something the table above can’t show. You can check how much a bad decade would hurt either path with the [Monte Carlo calculator](https://mycoastfire.com/coast-fire-monte-carlo-calculator).

## A middle path: paid off by the day you retire

You don’t have to pick one side. Erin’s loan runs to 70. Finishing it by 65 takes $129 a month extra, not $500. Finishing by 60 takes $341.

If she sends $129 to the lender and invests the rest, putting $2,371 a month into her portfolio, her FIRE number drops back to $1,250,000 and she reaches Coast FIRE at 49. That’s about when the invest-everything path gets there, and she owns the house outright at 65, as long as she keeps making the small extra payment after she stops investing.

This is what I’d do in her position. I’d make the extra payment by hand each month rather than refinance into a shorter loan, since a voluntary payment can stop in a bad year and a higher required payment can’t. Check that your loan has no prepayment penalty first.

To run your own numbers, put your spending without the mortgage into the [Coast FIRE calculator](https://mycoastfire.com/), then add your expected loan balance at retirement, in today’s dollars and divided by 25, to the spending figure. The [compound interest calculator](https://mycoastfire.com/compound-interest-calculator) will show you what the extra money grows to if you invest it instead.

## Questions people ask

### Should I pay off my mortgage before I retire?

It's worth aiming for, and it usually takes less than people expect. On a new 30-year loan at 6.5%, finishing five years early costs about $129 a month extra per $300,000 borrowed. With no payment in retirement, you need a smaller portfolio and smaller withdrawals in the early years, when a market drop does the most damage.

### Is it better to pay off a 3% mortgage or invest?

Invest. A 3% loan is cheap money, and in late September 2026 even Treasury bills paid more than 4%, with no risk. Paying down a 3% mortgage early means accepting a lower return than you'd get from cash.

### Does paying off my mortgage lower my Coast FIRE number?

Only by what you'd still owe when you retire, not by 25 times the payment. A fixed payment ends when the loan does, so the honest adjustment is to add your remaining balance at retirement to your FIRE number. For many people that's a small amount.

### Can I still deduct mortgage interest in 2026?

Yes, if you itemize. The 2025 tax law made the limit of $750,000 of acquisition debt permanent. But the 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, and only 9.5% of returns itemized in 2022, so most people get no benefit from their mortgage interest at all.

## Keep reading

-   [How to reach Coast FIREThe order to save in, and when you can ease off.](https://mycoastfire.com/blog/how-to-reach-coast-fire)
-   [Your Coast FIRE numberHow the number is built, step by step.](https://mycoastfire.com/coast-fire-number)
-   [What to do after Coast FIREOnce you cross the line.](https://mycoastfire.com/blog/what-to-do-after-coast-fire)