TL;DR: Pay Off Your Mortgage Early or Invest at 7.28%?
If your own mortgage rate is about 7% or higher, extra principal is the best risk-free use of spare cash right now. On a fixed-rate loan, prepaying a 7.28% mortgage works like a ≈9.33% taxable yield at the 22% bracket, vs 4.03% on a 3-month T-bill (≈3.14% after federal tax). That holds only until you refinance or sell, and the money is locked in your house. At 4% or below, the same numbers mostly say keep it liquid. Credit cards, your full 401(k) match, and an emergency fund come first.
Freddie Mac's 30-year fixed average hit 7.28% this week (Freddie Mac PMMS, October 1, 2026). That's the sixth straight weekly rise and the highest level since November 2023. Expect headlines calling extra mortgage payments "a guaranteed 7% return."
That's only true if 7% is the rate on your own loan, the loan is fixed-rate, and you keep it. Prepaying earns your note rate and nothing else, and roughly half of U.S. mortgages carry 4% or less. The same bond selloff pushed the 3-month T-bill to 4.03% and the 10-year Treasury to its highest since 2002. So the question isn't "is 7% high?" It's whether your rate beats what risk-free money pays after tax. Here's the table.
Mortgage Rates vs. T-Bills and Treasuries (Oct 1, 2026): Risk-Free Money Still Pays Less Than a 7% Mortgage
| What | Rate this week | Context | Source |
|---|---|---|---|
| 30-yr fixed mortgage (PMMS avg) | 7.28% | Prior week 7.03%; a year ago 6.34%; highest since Nov 2023 | Freddie Mac PMMS, Oct 1 |
| 15-yr fixed mortgage | 6.60% | Prior week 6.42%; a year ago 5.55% | Freddie Mac PMMS, Oct 1 |
| 3-month T-bill | 4.03% | State-tax-exempt | Fed H.15, Sept 30 |
| 1-year T-bill | 4.33% | State-tax-exempt | Fed H.15, Sept 30 |
| Top high-yield savings | ~4.21–4.25% APY | Variable; fully taxable | Yahoo Finance, Oct 1 |
| 10-year Treasury | 5.29% | Highest since 2002 | Fed H.15, Sept 30; NYT, Oct 1 |
| 30-year Treasury | 5.64% | Price risk if sold early | Fed H.15, Sept 30 |
| Prime rate | 7.00% | After the Sept 16 Fed hike to 3.75%–4.00% | Fed H.15; Fed statement |
Look at the gap between the first row and the 10-year: about 2.0 percentage points (7.28% minus 5.29%). That's roughly the premium mortgage borrowers pay over the government's own borrowing cost. If your loan sits near today's rate, every extra dollar of principal captures that spread without market risk.
The move was fast. Bloomberg called it the biggest weekly jump since October 2022. The Fed's September hike was its first since 2023. The Fed's median projection shows one more in 2026, and the next meeting is Oct 27–28. Nothing about the next move is certain.
Prepaying Is Buying a Bond That Yields Your Mortgage Rate
Each extra dollar of principal cancels interest that would otherwise build up at your note rate. In economic terms, that's a bond paying your mortgage rate, with no price swings, held until you pay off, refinance, or sell. On a fixed-rate loan, that yield never moves.
Why the S&P 500 Is the Wrong Benchmark
Most prepay-vs-invest articles compare your mortgage to a 10% stock return. That mixes up two kinds of money. Stocks may beat 7% over long stretches, but they can lose money in any given year. Interest you avoid on a fixed-rate loan can't.
The fair test is risk-free against risk-free: your loan vs T-bills, Treasuries, and savings. That's how the Bogleheads community frames it. Prepaying is a bond yielding your after-tax mortgage rate, so price it against bonds. None of this makes stocks wrong. With a long horizon and the stomach for drawdowns, investing can make sense. That's a risk choice, not a math error.
Why Early Extra Dollars Do the Most
On a $300,000 30-year loan at 7.28%, the payment is $2,052.64 and lifetime interest comes to $438,949, more than the loan itself. The bulk of that interest is charged in the early years, when the balance is largest. A dollar sent early cancels interest in every month that follows. That's how amortization front-loads your interest, and it's why timing matters as much as amount.
The After-Tax Breakeven: What Your Rate Has to Beat in 2026
T-bill, savings, and Treasury interest is taxable. Mortgage interest you avoid isn't income. If you take the standard deduction, a 7.28% loan returns 7.28% after tax. To compare fairly, cut the alternatives down to after-tax yields, or gross your rate up to a taxable-equivalent yield. These tables do both, federal tax only.
| Option | Pre-tax | After 22% federal | Notes |
|---|---|---|---|
| 3-month T-bill | 4.03% | ≈3.14% | State-tax-exempt |
| High-yield savings | 4.25% | ≈3.31% | Before state tax; rate can drop anytime |
| 1-year T-bill | 4.33% | ≈3.38% | State-tax-exempt |
| 10-year Treasury | 5.29% | ≈4.13% | Price can fall if sold early |
| 30-year Treasury | 5.64% | ≈4.40% | Large price risk if sold early |
| Prepaying a 7.28% fixed mortgage (standard-deduction filer) | 7.28% | 7.28% (≈9.33% taxable-equivalent) | Only until refi or sale; illiquid |
| Bracket | Taxable yield needed to match prepaying 7.28% | 3-mo T-bill after tax | HYSA after tax |
|---|---|---|---|
| 12% | 8.27% | 3.55% | 3.74% |
| 22% | 9.33% | 3.14% | 3.31% |
| 24% | 9.58% | 3.06% | 3.23% |
| 32% | 10.71% | 2.74% | 2.89% |
How to read it, using the rate on your loan (22% bracket):
- Below ≈3.1–3.3%: T-bills and high-yield savings win after tax.
- ≈3.3%–4.4%: close call. Prepaying may edge ahead on paper, but liquidity usually favors keeping cash.
- 5% and up: prepaying increasingly wins.
- 7% and up: a clear win among risk-free options.
Don't compare a 3.5% mortgage to a 4.03% T-bill and stop there. After federal tax, that T-bill nets about 3.14%.
Pay Off the Mortgage or Keep the Tax Deduction?
For most households, there's no deduction to keep. The 2026 standard deduction is $16,100 single, $32,200 married filing jointly, and $24,150 head of household. Only about 10% of filers itemized in tax year 2022, per the Tax Policy Center.
Year-one interest on $300,000 at 7.28% is $21,745, below the $32,200 joint standard deduction. Many couples get no tax benefit from mortgage interest at all. If you do itemize, mortgage interest saves tax only to the extent your total itemized deductions (mortgage interest, state and local taxes, charitable gifts) exceed your standard deduction. That makes your effective return on prepaying somewhat lower than your note rate.
The 2026 rules also changed. The $750,000 mortgage-debt cap is now permanent. The SALT cap is $40,400 for 2026, phasing down above $505,000 of income. Mortgage insurance premiums are deductible again, per H&R Block.
Your rate, not the headline, decides this. Enter your mortgage balance, rate, payment, and monthly income and expenses. The free simulator (email required) shows how many years your monthly surplus cuts when it goes to principal and how much interest you'd skip. Then hold your rate against the after-tax T-bill line above (about 3.14% at the 22% bracket, not the 4.03% headline yield).
Simulate my extra payments (free) →The Verdict by Rate Band: 7%+, 5–6.9%, and 4% or Below
Your own note rate decides this, not the headline. Against after-tax risk-free yields (22% federal bracket, Oct 1, 2026): at about 7% or higher on a fixed-rate loan, prepaying wins among risk-free options; at 5%–6.9%, it still wins on yield, but liquidity decides; at 4% or below, T-bills and high-yield savings win or come close after tax, so keep it liquid.
If Your Rate Is About 7% or Higher: Prepaying Wins Among Risk-Free Options
A 7.28% fixed loan works like a ≈9.33% taxable yield at the 22% bracket. The 3-month T-bill nets about 3.14% after federal tax. Even the 30-year Treasury nets only about 4.40%, and you'd carry price risk to get it. Nothing risk-free on this week's board comes close.
In dollars: adding $500 a month to a $300,000 loan at 7.28% pays it off in 17 years 3 months and saves $212,144 in interest.
Three caveats belong next to that number. Build your emergency fund first. Cash sent to principal stays locked in until you sell, borrow against the house, or do a cash-out refi. And if you later refinance lower, future prepayments earn the new, lower rate. We won't forecast where rates go.
On a fixed rate of 7% or more, every extra dollar works at your note rate until you refinance or sell. See what your monthly surplus does to your payoff date.
See how many years your surplus cuts off a 7% loan →If Your Rate Is 5%–6.9%: Prepaying Still Wins on Yield, but Liquidity Decides
Even the 30-year Treasury, after tax (≈4.40%), pays less than a 5% mortgage. So prepaying still wins on yield, by a smaller margin. On $300,000 at 6.50%, +$500 a month pays off in 17 years 6 months and saves $179,759.
In this band, the deciding factors are about you more than the rate: your emergency fund, how steady your income is, and how long you'll keep the house. Splitting extra cash between principal and a T-bill ladder is a reasonable middle path for many households. That's a judgment call, not a rule.
If Your Rate Is 4% or Below: Keep It Liquid (Honestly)
This is the band headlines skip. About 49.9% of outstanding mortgages carried 4% or less as of Q1 2026, per FHFA data reported by Wolf Street.
At the 22% bracket, below about 3.1–3.3%, a T-bill or high-yield savings account beats prepaying after federal tax, and your money stays reachable. The cutoff is higher in lower brackets and lower in higher ones (see the bracket table). From about 3.3% to 4%, it's a close call, and liquidity tips it toward cash. Between 4% and 5%, compare your rate to the after-tax 10-year (≈4.13%) and 30-year (≈4.40%). That's still close-call territory.
Watch the dollars trap. Adding $500 a month to $300,000 at 3.00% "saves" $64,227 in interest. It sounds big, but prepaying that loan earns 3.00%, while a 3-month T-bill nets about 3.14% after federal tax at the 22% bracket, and the cash stays reachable. If yields held near this week's levels, the same $500 a month in T-bills would have come out slightly ahead. Dollars saved isn't the metric. Rate vs rate is.
That puts us at odds with the debt-free-at-any-cost camp. It's also why HELOC chunking against a sub-4% loan now raises your cost. Prepaying probably isn't your best move at this rate, but if you want your exact payoff math anyway, the free simulator will show it.
What "Guaranteed" Really Means (and When It Stops)
Prepaying only works like a guaranteed return at your own note rate (a 7% return only if your own rate is about 7% or higher), and only within these limits:
- Fixed-rate loans only. On an ARM, your return resets with the rate.
- Only until you refinance or sell. Refinancing lower cuts the return on future prepayments. A sale ends it.
- No cash flow until payoff. Your required payment doesn't drop unless your servicer recasts the loan. Ask about their terms.
- Illiquid. You get the money back only by selling, through a HELOC (secured by your home, variable rate, and the lender can freeze or reduce the line), or with a cash-out refi at then-current rates.
- It's interest you avoid, not a deposit. It isn't FDIC-insured or Treasury-backed. The equivalence is mathematical.
Why Not Use a HELOC to Do This Faster?
The average HELOC runs about 7.29% (Bankrate, Sept 30), vs 7.28% for a new 30-year fixed. On average, the rate gap that made HELOC chunking appealing is gone. A HELOC is also variable-rate and secured by your home. See what the Fed hike did to HELOC math, re-run against our original $300k velocity banking example.
Before You Send a Dollar Extra: The Priority Checklist
- Credit cards first. The average APR is 24.92% (Forbes, Sept 28). No mortgage comes close.
- Get your full 401(k) match. Formulas vary, but a match is an immediate return that no prepayment beats.
- Build an emergency fund. Common guidance is 3–6 months of expenses, or 6–12 if your income is variable. Park it in T-bills or high-yield savings at around 4%.
- Pay off any other debt above your mortgage rate.
- Then prepay, if your rate sits above your after-tax breakeven from the tables above.
- Re-check when rates move or before you refinance.
What Extra Payments Do to a $300k Mortgage at 7%
| Extra | Payoff time | Total interest | Interest saved | Time cut |
|---|---|---|---|---|
| +$250/mo | 21y 8m | $283,248 | $135,278 | 8y 4m |
| +$500/mo | 17y 4m | $218,291 | $200,235 | 12y 8m |
| +$1,000/mo | 12y 7m | $151,924 | $266,603 | 17y 5m |
| 1 extra payment/yr | 24y 0m | $319,982 | $98,545 | 6y 0m |
| 4 extra payments/yr* | 15y 5m | $190,372 | $228,154 | 14y 7m |
*Modeled as one-third of a monthly payment added each month. Figures assume a fixed rate, no recast, and on-time payments.
At this week's 7.28%: +$500/mo pays off in 17y 3m and saves $212,144; a 20-year payoff takes ≈+$324/mo.
How to Cut 10 Years Off a 30-Year Mortgage
At 7.00% on $300,000, about $330 a month extra gets you to a 20-year payoff. At 7.28%, it's about $324. The other route is refinancing into a 15-year (6.60% average this week, per Freddie Mac). That carries closing costs, raises your required payment, and removes the flexibility to skip extra payments in a tight month. Neither is wrong. One keeps the choice in your hands.
What Happens If You Make 4 Extra Payments a Year
At 7.00% on $300,000, four extra payments a year cut payoff to 15 years 5 months and save $228,154 in interest. We modeled that as one-third of a payment added every month, assuming a fixed rate, no recast, and on-time payments. For the full playbook, see a full plan for paying off a 30-year mortgage much faster.
Rates repriced this week. Re-check your breakeven every time they move.
Run your own balance, rate, payment, and monthly surplus to see your payoff date and interest saved. Then check your rate against this week's table. Free, about 60 seconds; you'll enter your email to see your results.
Run my payoff numbers (free) →Prepaying every month? Pro ($49.90/yr, less than $5/month, cancel anytime) logs your extra principal payments and tracks your payoff progress.
Frequently Asked Questions
Should I pay off my mortgage early or invest?
Compare your own mortgage rate with risk-free yields after tax, not with a 10% stock return. If your fixed rate is about 7% or higher, extra principal beats every risk-free market yield this week (T-bills, Treasuries, savings), though the money stays locked in your house until you refinance or sell. At 4% or below (22% bracket), T-bills and high-yield savings win or come close after tax and keep your cash reachable. Stocks can still make sense with a long horizon, but that's a risk choice, not a math error.
How to cut 10 years off a 30-year mortgage?
On a $300,000 30-year fixed loan at 7.00%, adding about $330 a month to principal pays it off in roughly 20 years. At this week's 7.28%, it takes about $324 a month. Your exact figure depends on your balance and rate.
What happens if I pay 4 extra mortgage payments a year?
On a $300,000 loan at 7.00%, four extra payments a year (modeled as one-third of a payment added each month) cut payoff to 15 years 5 months and save $228,154 in interest. Your required monthly payment doesn't drop unless your servicer recasts the loan.
Should I pay down my mortgage at 7%?
If your own fixed rate is about 7% or higher, extra principal beats every risk-free market yield this week (T-bills, Treasuries, savings). A 7.28% loan works like a ≈9.33% taxable yield at the 22% bracket, vs ≈3.14% after tax on a 3-month T-bill. Clear credit cards, get your full 401(k) match, and build an emergency fund first. The money stays locked in your house until you refinance or sell.
Should I pay extra on my mortgage if I have a low interest rate?
Usually not. At the 22% federal bracket, below about 3.1–3.3%, T-bills and high-yield savings beat prepaying after tax and keep your cash reachable. Between about 3.3% and 4.4% it's a close call, and liquidity usually tips it toward keeping cash.
Is paying extra on a mortgage a guaranteed return?
Only in a mathematical sense, and it only clearly beats risk-free yields if your own rate is about 7% or higher. On a fixed-rate loan, each extra dollar avoids interest at your note rate until you refinance or sell. It pays no cash flow until payoff, the money is illiquid, and it isn't FDIC-insured or Treasury-backed.
Should I pay off my mortgage or keep the tax deduction?
Most filers take the standard deduction ($32,200 for married couples filing jointly in 2026). Year-one interest on a $300,000 loan at 7.28% is $21,745, so many couples get no tax benefit from mortgage interest. If you itemize, mortgage interest saves tax only to the extent your total itemized deductions exceed the standard deduction, which lowers your effective prepayment return somewhat.
This article is for education, not financial, tax, or investment advice. Rates are as of October 1, 2026 and change weekly. Tax figures are federal only and assume 2026 rules. Your situation (state taxes, itemizing, loan type, job stability) can change the answer. Forecasts about Fed decisions or future rates are uncertain. Consider a qualified professional before making large financial moves.
Want more of the math? Browse the full payoff-math wiki.