Paying extra on a mortgage guarantees a return equal to its interest rate — investing that same money instead offers a potentially higher, but not guaranteed, return.
How it works
The extra monthly amount is compounded forward at an assumed investment return over the comparison period, showing the future value if invested instead of applied to the mortgage. Comparing the investment return against the mortgage rate shows which guarantees a better outcome mathematically.
What this does not include
This doesn’t include risk — the mortgage payoff option is a guaranteed return at its rate, while the investment return is an assumption that could be wrong in either direction; investors with a low risk tolerance may prefer the guaranteed option even at a mathematically lower expected return.
How to use this calculator
- Enter the extra monthly amount, mortgage rate, assumed investment return, and comparison period.
Frequently asked questions
Is investing always better if the expected return exceeds the mortgage rate?
Mathematically, in expectation, yes — but the mortgage rate is guaranteed while investment returns are not, so the comparison isn’t purely about expected value alone for many people.
Does mortgage interest deductibility change this comparison?
For taxpayers who itemize and deduct mortgage interest, the effective after-tax mortgage rate is lower than the stated rate, which would need to be factored in for a precise after-tax comparison.
What about the psychological value of being debt-free?
Many people value the certainty and peace of mind of an early payoff independent of the pure math — this calculator quantifies the financial tradeoff, not personal risk preferences.
