Pay off your mortgage early or invest?

The principle: repaying debt is a guaranteed return

Every euro you put towards the mortgage "earns" exactly the interest rate you stop paying. No risk, no tax, no volatility. So the right comparison isn't mortgage rate versus the gross return on investments, but net mortgage rate versus the expected net return on what you'd otherwise do with the money.

Step 1: your net mortgage rate

On a mortgage for your main home you can claim a 19% tax credit on interest, up to €4,000 of interest a year. If your mortgage is at 3% and annual interest stays below that threshold, the net cost is about 3% × (1 − 0.19) ≈ 2.4%.

For higher incomes, since 2025 tax credits are subject to overall caps: in that case the net cost can get close to the full rate. And with a variable-rate mortgage, the comparison needs redoing whenever rates change.

Step 2: the net return on investments

From a portfolio's expected return you need to subtract costs, stamp duty and 26% tax on gains. A portfolio with an expected gross return of 5–6% can fall to around 3.5–4% net. Above all, it isn't guaranteed: over some 10-year periods, stock markets have returned little or nothing.

Step 3: questions before the numbers

• Do you have an emergency fund? Money put into the mortgage doesn't come back. Before paying down, keep at least 6–12 months of spending aside.
• Do you have more expensive debt? Personal loans, consumer finance and revolving credit cards should go before the mortgage.
• Are you using a pension fund? The deduction on contributions can be worth more than paying down. See pension fund or investment plan.
• How much does the debt weigh on you? Peace of mind has real value. If the mortgage keeps you up at night, a guaranteed 2–3% return can be the right choice even when the numbers point the other way.

Partial repayment: lower payment or shorter term?

For home mortgages in Italy, early repayment, full or partial, comes with no penalty. With a partial repayment you can usually choose to:

• shorten the term: you save more interest overall and finish sooner;
• lower the payment: you cut monthly spending and immediately increase how much you can save.

The mistake to avoid in FIRE calculations

When you work out your FIRE number, don't multiply your mortgage payment by 25 or 28 as if it lasted forever. A €690 monthly payment (€8,290 a year) treated as a permanent expense would need about €237,000 of extra capital at a 3.5% withdrawal rate. But if the mortgage has 15 years and €100,000 left to run, the real cost is much lower: you just need to pay it off or cover the remaining payments.

That's why the payment should be treated as a temporary expense, like the bridge capital in early retirement. Often the most efficient strategy is to reach the day you stop working with the mortgage paid off or nearly so: it lowers your fixed costs in exactly the years when your portfolio is most vulnerable.