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.