Mortgages

Pay Off Mortgage Early or Invest Calculator

Paying down a mortgage earns you its interest rate, guaranteed and risk-free. Investing might earn more, but might not. The comparison is not return against return — it is a certain return against an uncertain one, and the gap has to be wide enough to be worth the risk.

Tested against worked examplesHow we verify

Mortgage balance

Mortgage rate

Months remaining

Extra payment per month

Expected investment return

Capital gains rate

0 if the money goes into a Roth or other untaxed account.

Investing comes out ahead by

$304,866

If the market delivers the return you assumed, which it will not do evenly.

The two paths are close enough that the assumed return decides the answer — and that assumption is the least reliable input here. When it is this tight, the tiebreaker is usually temperament rather than arithmetic.

Interest saved by paying down: $179,759
Months off the mortgage: 12 years 7 months
Investment value after tax: $665,125
Of which growth: $570,148
Tax on that growth: $85,522
Return needed to match paying down: 7.65%

Principal you would have paid$180,50050%

Interest saved$179,75950%

Compare scenariosTry three values of one input

Vary

Pay Off Mortgage Early or Invest Calculator results for three values of Mortgage balance
Mortgage balance
Investing comes out ahead by	$310,062	$304,866−$5,195	$296,309−$13,752
Interest saved by paying down	$170,341	$179,759+$9,418	$188,316+$17,975
Months off the mortgage	13 years 2 months	12 years 7 months−7 months	11 years 11 months−1 year 3 months
Investment value after tax	$660,403	$665,125+$4,723	$665,125+$4,723
Of which growth	$565,180	$570,148+$4,968	$570,148+$4,968
Tax on that growth	$84,777	$85,522+$745	$85,522+$745

Every other input stays at the value you set above — currently $300,000 for mortgage balance. Differences are measured against the first column.

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How this calculator works

The mortgage is amortised twice — with and without the extra payment — and the difference in total interest is the guaranteed saving. The same extra amount is then compounded monthly at the investment return over the months the mortgage would otherwise have run, with capital gains tax applied to the growth only. The advantage is the after-tax investment value less contributions, minus the interest saved.

A constant investment return is assumed, which no market delivers; real sequences matter enormously when contributions are monthly. The mortgage interest deduction, PMI removal, and the option value of liquidity are not modelled, and investing is assumed to actually happen every month rather than in intention only.

What this assumes

A constant investment return, which real markets deliver unevenly and never on schedule.
The mortgage rate is fixed and the tax treatment of the interest is not modelled — most borrowers now take the standard deduction, so the interest produces no tax benefit.
It assumes the money genuinely is invested. If it would be absorbed into spending, the comparison does not apply.

What changes this number

The spread between the rate and the return: The whole comparison. Below roughly 8–10% mortgage interest the two are close enough that temperament reasonably decides.
Certainty: Paying the mortgage returns its rate guaranteed; investing returns an expectation. The calculator cannot price that difference for you.
Time horizon: A longer horizon favours investing, because it gives an uneven return time to average out.

A worked example

Take the $500 extra at 6.5% vs 8% return scenario. These figures are produced by the calculator above, not written alongside it, so they always match what the tool returns.

What you enter

Mortgage balance: $300,000
Mortgage rate: 6.5%
Extra payment per month: $500
Expected investment return: 8%

What it returns

Investing comes out ahead by: $304,866
Interest saved by paying down: $179,759
Months off the mortgage: 12 years 7 months
Investment value after tax: $665,125
Of which growth: $570,148

Try an example

$500 extra at 6.5% vs 8% return A low pandemic-era rate In a Roth, untaxed

Frequently asked questions

Should I pay off my mortgage early or invest?

Compare the mortgage rate against your expected return after tax. At 3% the market usually wins; at 7% or more the guaranteed saving is hard to beat. In between it is close enough that liquidity, risk tolerance and how much the debt weighs on you matter more than the arithmetic.

Why does the mortgage rate count as a guaranteed return?

A dollar of principal paid early removes every future interest charge that dollar would have generated, at exactly the mortgage rate. Nothing about it is uncertain. An 8% expected market return is an average across decades that includes years of −30%.

Does the mortgage interest deduction change this?

For most people it no longer does. Since the 2017 standard deduction increase, roughly nine in ten filers do not itemise, so mortgage interest gives them no tax benefit at all. If you do itemise, your effective rate is lower than the note rate, which tilts the answer toward investing.

What should I do before either one?

Capture the full employer 401(k) match, since that is an instant 50–100% return. Clear any debt above the mortgage rate — credit cards especially. Build an emergency fund, because home equity is not spendable. Only then does this comparison become the live question.

Is there a middle path?

Splitting the extra payment is entirely reasonable and is what many people actually do. It gives up some expected return for a shorter loan and a sleep-at-night benefit that no calculator can price. There is no rule that the answer must be all one thing.

This calculator helps answer

Should I pay off debt or invest?

Compare a guaranteed return you cannot lose against an expected one you might. The answer is clear at both extremes and genuinely close in the middle.