Jasmine Birtles
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Should You Pay Off Your Mortgage or Invest in 2025?
Ruby Layram
16th Jul 2025
If you’re lucky enough to have a bit of extra money lying around, maybe a bonus, inheritance, or just a healthy savings habit, you’ve probably wondered what to do with it.
And in 2025, with higher living costs and interest rates still playing havoc with our finances, a common question is this: Should I pay off my mortgage early or invest the money instead?
It’s a great question, and the answer isn’t always straightforward. We will take a closer look at both options in this guide to help you come to a conclusion.
What Happens When You Pay Off Your Mortgage Early?
Paying off your mortgage early can be incredibly satisfying. Imagine: no more monthly payments, complete peace of mind, and full ownership of your home. Sounds good, doesn’t it?
But is it the best use of your money?
Pros of Paying Off Your Mortgage:
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Guaranteed return: If your mortgage rate is 4%, then paying it off gives you a “return” of 4%, risk-free. That’s better than most cash savings accounts.
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Less stress: Fewer bills to worry about every month. That can give you serious peace of mind, especially in uncertain times.
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You own your home outright: No more interest payments, and you’re not tied to the bank anymore.
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Improves your cash flow: Once it’s gone, that’s hundreds (if not thousands) of pounds freed up each month.
Why It Might Not Be The Best Option:
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Opportunity cost: That money could be working harder elsewhere. Historically, investments in the stock market have returned around 6–8% annually, more than most mortgage rates.
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It’s tied up: Once you’ve paid off your mortgage, the money is locked into your house. You can’t easily access it unless you remortgage or sell.
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You might face early repayment charges: Check with your lender. Some mortgages charge fees if you overpay beyond a certain limit.
What Happens When You Invest Instead?
Instead of clearing your mortgage, you could put that extra money into a stocks and shares ISA, a pension, or a diversified investment fund. With compound interest on your side, the money could grow substantially over time.
Pros of Investing:
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Potential for higher returns: The stock market tends to beat mortgage rates over the long term. If your mortgage rate is 3.5% and your investments return 7%, you’re 3.5% better off.
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Liquidity: You can usually sell investments if you need access to the cash.
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Tax benefits: Using an ISA or pension means your gains can be tax-free or tax-efficient.
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Keeps your mortgage interest cheap: If your mortgage rate is fixed or low, it might make more sense to hold onto it and invest instead.
Why It Might Not Be The Best Option:
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It’s not guaranteed: Investments can go down as well as up, there’s always risk involved.
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Can feel more complicated: You’ll need to choose where to invest, how much risk to take, and be prepared for ups and downs.
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Psychological strain: Some people just feel better being debt-free, even if investing might make more financial sense on paper.
So… Which One Should You Choose in 2025?
It really depends on your situation. Ask yourself:
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What’s your mortgage interest rate? If it’s high (say 5%+), paying it off could be a smart move. If it’s low, investing might win.
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Do you have other debts? Clear high-interest debts like credit cards first — they’re far more costly than most mortgages or investments.
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Do you have an emergency fund? You should have 3–6 months’ worth of expenses in a savings account before paying off the mortgage or investing.
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Are you risk-averse or risk-tolerant? If you hate seeing the value of your money go up and down, you might prefer the certainty of being mortgage-free.
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How long until retirement? If you’re younger, investing gives you more time to ride out market fluctuations and benefit from compound growth.
Can You Do Both?
Yes! You don’t have to pick one or the other. A good compromise could be:
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Make overpayments on your mortgage within your lender’s penalty-free limits
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Invest the rest in a stocks and shares ISA or pension. That way, you’re building wealth and reducing debt at the same time.
Final Thoughts
In 2025, with interest rates still relatively high and markets recovering from a rocky few years, both paying off your mortgage and investing have their pros and cons.
The best choice depends on your personal goals, your risk tolerance, and your financial position.
If in doubt, speaking to a regulated financial advisor can help you figure out the best option for you.
But whichever route you take, just remember that having extra money to make this decision in the first place means you’re already ahead of the game.
As with any type of investing, you capital is at risk. To learn more about investing, do sign up to our fortnightly MoneyMagpie Investing Newsletter. It’s free and you can unsubscribe at any time.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice.
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