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How can you decide whether it is best to invest excess cash or pay off your mortgage early? Consider the following example: Suppose the stated interest rate on your mortgage is 4 percent and you are in the 28 percent federal income tax bracket. Your after-tax mortgage rate is roughly 2.9 percent, perhaps lower if you can also deduct the mortgage interest on your state income tax return. For many investors, investment portfolios are constructed using a risk tolerance that carries a much higher annualized expected investment return than 2.9 percent.