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This will be just enough to cover your (simple, not compounding!) mortgage interest

Interest is interest. There's no difference between "simple" and "compounding" interest.

The only difference is whether you can earn the same rate of return on an investment in the future.

Paying off your mortgage is the same as investing in an no-risk perpetual bond with a coupon the same as your interest rate (but that you can't sell). I'd argue that this interest does "compound": When you prepay on your principal, the amount of your future payments that goes to principal increases.

But when you've paid off your mortgage, you can't make further investments into it.

Still, you should make your cash allocation decisions based on what you believe will earn you the best long-term rate of return at a risk you're comfortable with.
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