Finance category
Mortgage, loan, investing, tax, and money calculators.
Payoff vs Invest Calculator
Extra money can pay down the mortgage (guaranteed after-tax return at mortgage rate) or go into the market (expected higher return but variable). This calculator compares both paths with tax adjustments.
Better strategy
Invest
Invest path future value
$675,536
Payoff path future value
$675,130
Invest advantage
$406
Effective mortgage rate
6.88%
After-tax invest return
6.88%
How the math works
Paying off a mortgage is a guaranteed after-tax return equal to the mortgage rate. Investing in the market is an expected (not guaranteed) after-tax return. When the expected investment return exceeds the after-tax mortgage rate, investing tends to win in expectation.
Behavioral factors matter too: paying off the mortgage removes risk and provides psychological security. Investing is mathematically better most of the time but requires stomach for volatility. Many financial advisors recommend a mix of both.
How to Use
- Enter your mortgage balance, rate, and months remaining.
- Enter the extra monthly amount you have available.
- Enter expected market return. S&P 500 historical is ~10% pre-tax, ~8% after inflation.
- Enter marginal tax rate.
- Indicate whether you itemize to see mortgage interest deduction benefit.
Frequently Asked Questions
What's a realistic expected return?
S&P 500 averages ~10% pre-tax over 30-year periods, 7% inflation-adjusted. Use 7-8% after-tax for conservative planning. Variance is real — some 10-year periods produce 3%; others 15%.
Does mortgage deduction change the calculus?
If you itemize, effective mortgage rate drops by your marginal rate. At 28%, 7% rate becomes 5.04% effective. With market returning 8% after-tax, the investing advantage widens.
What about risk?
Mortgage payoff is guaranteed. Investing has volatility. If you'd panic-sell in a drawdown, the paper 8% return becomes a realized loss. Payoff provides psychological security that's worth something beyond the math.
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