Pay Off Mortgage or Invest?
Put extra money toward your mortgage or invest it in the market? This calculator runs both scenarios side by side so you can see which builds more wealth.
Pay Off Early: You put an extra $500/month toward your mortgage. Once it's paid off in 18y 7m, you invest the full $2,712/month for the remaining years.
Invest Instead: You make normal payments and invest the extra $500/month at 9% annual return for the full 30 years.
Net worth = home equity + investment balance. This captures the full opportunity cost of each decision.
Should I Pay Off My Mortgage Early or Invest?
This is one of the most common financial questions homeowners face — and the answer depends on a few key variables: your mortgage interest rate, expected investment returns, your tax situation, and your personal tolerance for risk.
The core tradeoff is straightforward. Paying off your mortgage early gives you a guaranteed return equal to your interest rate. If you have a 6.5% mortgage, every extra dollar you put toward it earns you an effective 6.5% by avoiding future interest charges. Investing, on the other hand, has historically returned around 10% annually in the S&P 500 — but that return isn't guaranteed in any given year.
How This Calculator Works
This calculator models two complete scenarios over the remaining life of your mortgage:
Scenario A (Pay Off Early): You make your normal monthly payment plus an extra amount each month. Once the mortgage is fully paid off, you redirect the entire monthly amount (your old payment plus the extra) into market investments for the remaining years of the original term.
Scenario B (Invest Instead): You make only your normal monthly mortgage payment and invest the extra amount in the market each month for the entire loan term.
Net worth at the end is calculated as home equity plus investment balance in each scenario. This is the correct way to compare because it accounts for the opportunity cost — the money you use to pay down the mortgage can't simultaneously be invested.
Key Factors to Consider
The rate spread matters most. If your mortgage rate is 3% and you expect 9% market returns, investing almost always wins by a wide margin. If your mortgage rate is 7%+, paying it off becomes much more competitive because you're getting a guaranteed high return.
Tax implications aren't included here. If you itemize deductions, your mortgage interest may be tax-deductible, which effectively lowers your mortgage rate. On the investing side, gains in taxable accounts are subject to capital gains tax. These factors tend to slightly favor investing but depend on your individual tax situation.
Risk tolerance is personal. The market return in this calculator is an average — actual returns will vary significantly year to year. Paying off your mortgage is a guaranteed, risk-free return. For some people, the peace of mind of owning their home outright is worth more than a potentially higher return in the market.
Emergency fund first. Before putting extra money toward either option, make sure you have 3-6 months of expenses saved in a liquid account. Neither a paid-off house nor an investment portfolio helps much if you can't cover an unexpected expense.
Common Scenarios
High mortgage rate (7%+): Paying off the mortgage early becomes very attractive. The guaranteed 7%+ return from eliminating interest is hard to beat on a risk-adjusted basis.
Low mortgage rate (3-4%): Investing almost always wins mathematically. Many homeowners locked in rates in this range during 2020-2021, making their mortgage effectively "cheap money."
Middle ground (5-6%): This is where it gets interesting. The mathematical winner depends heavily on your assumed market return. Try adjusting the sliders above to see how sensitive the outcome is to small changes in either rate.
Frequently Asked Questions
Is it better to pay off your house or invest in the stock market?
It depends primarily on your mortgage rate vs. your expected investment returns. If your mortgage rate is higher than what you expect to earn investing (after taxes), pay it off. If your rate is low and you have a long time horizon, investing typically wins.
What rate of return makes investing better than paying off my mortgage?
As a rough rule of thumb, if your expected after-tax investment return exceeds your mortgage rate by 2-3%, investing has a strong mathematical advantage. Use the calculator above to model your exact situation.
Should I pay extra on my mortgage if I have a low interest rate?
Generally, no — at least not from a pure math perspective. If you locked in a rate below 4%, your money almost certainly works harder in the market. However, personal comfort with debt is a valid factor that this calculator can't capture.
Does this calculator account for inflation?
The calculator uses nominal returns, not inflation-adjusted. Since both scenarios are compared over the same time period, inflation affects them equally and doesn't change which option wins — only the real purchasing power of the final numbers.