Extra cash can go toward your mortgage or into investments. Mortgage prepayment provides a guaranteed return equal to your interest rate. Investing offers higher expected returns but with market risk. This calculator compares both paths over your chosen horizon.
How to use this calculator
- Enter your current mortgage balance and interest rate.
- Enter the extra monthly amount you could pay or invest.
- Enter expected investment return and time horizon.
- Review interest saved, investment growth, and net difference.
Formula
Mortgage interest saved equals the difference in interest paid with vs without extra payments over the horizon, assuming a 30-year base payment. Investment growth compounds the monthly extra at the expected return. Net difference = investment growth minus interest saved.
Example
On a $250,000 mortgage at 6.5% with $500/month extra over 10 years, prepayment might save about $28,000 in interest while investing the same $500/month at 7% could grow to roughly $86,000 — a net difference favoring investing in this scenario.
Frequently asked questions
- Is mortgage payoff guaranteed return?
- Yes. Every dollar of principal you pay down stops future interest on that dollar, which is a guaranteed savings equal to your mortgage rate.
- Should I invest instead if returns are higher?
- Higher expected returns do not guarantee outcomes. Many people split extra cash between both goals based on risk tolerance and peace of mind.
- What is the break-even between paying off a mortgage and investing?
- When your expected investment return exceeds your mortgage rate, investing often wins on paper. When your mortgage rate is higher, prepayment provides a guaranteed return.
- Does this include the mortgage interest tax deduction?
- No. Tax benefits from mortgage interest can reduce the effective cost of borrowing, which may shift the comparison toward investing for some taxpayers.
- Should I pay off my mortgage before maxing out my 401(k)?
- Many planners prioritize employer 401(k) match first, then weigh mortgage rate against expected investment returns and personal risk tolerance.
- What if I itemize mortgage interest on taxes?
- The tax deduction lowers your effective mortgage rate. Adjust your comparison mentally or consult a tax professional for your situation.
- Is it better to invest in a Roth IRA or pay down my mortgage?
- Roth contributions grow tax-free, while mortgage prepayment provides a guaranteed return. The better choice depends on rates, tax bracket, and liquidity needs.
- How does inflation affect this decision?
- Fixed-rate mortgage payments become easier to afford as income rises with inflation, while investment returns may outpace inflation over long horizons.
- What about prepayment penalties?
- Some loans charge fees for paying off early. This calculator assumes no prepayment penalties. Check your loan terms before making extra payments.
- Should I keep an emergency fund before prepaying my mortgage?
- Most advisors recommend 3–6 months of essential expenses in accessible savings before aggressive mortgage prepayment or investing.