Compare money decisions
Extra Mortgage Payment vs. Investing Calculator
Mortgage and investment assumptions
End-of-term comparison
Compare the two approaches
Comparison assumption:
Important note: Mortgage interest savings follow the fixed loan terms entered. Investment results use a smooth hypothetical return. Real investment returns will rise and fall and may be lower than the amount shown.
Strategy comparison
| Measure | Extra mortgage payment | Invest |
|---|---|---|
| Amount each month | ||
| Mortgage interest avoided | ||
| Mortgage paid off sooner | ||
| Total mortgage interest | ||
| Total investment contributions | ||
| Total investment growth | ||
| Investment balance |
How the same monthly budget could build value
The mortgage line represents extra home equity compared with the normal payment schedule, plus investments made after the mortgage is paid off. The investing line represents the hypothetical investment account balance.
What if the investment return is different?
| Scenario | Annual return | Pay mortgage early | Invest the extra | Difference |
|---|
These scenarios only show how the result changes when the return assumption changes. They do not represent the range of returns the market is likely to produce.
For educational purposes only. This is not financial advice. Seek appropriate professional advice before making any financial decisions.
What this comparison shows
This calculator compares using the same extra monthly amount to pay down your mortgage or invest. It shows estimated interest avoided, investment value, mortgage payoff time, and access to the money.
The two choices work differently. Paying extra toward the mortgage reduces debt and avoids future interest. Investing puts the money into an account that may grow, but the value can rise or fall. Invested money is also usually easier to access than money paid into a home loan.
The investment balance includes both your contributions and any estimated growth, so it is not all profit. The calculator separates these amounts and uses the same total monthly budget for both strategies.
To keep the comparison fair, once the mortgage is paid off early, the calculator assumes the former mortgage payment is invested for the rest of the original loan term. Without this step, the investing strategy would receive more money simply because the mortgage-first strategy stopped making mortgage payments sooner.
Paying extra toward the mortgage
Every extra dollar you pay toward principal, the amount you still owe, lowers the balance used to calculate future interest. With a fixed-rate mortgage, you can estimate the interest you may save from the loan terms entered. The mortgage may also end years earlier.
Possible benefits
- Interest savings do not depend on the stock market.
- The mortgage can be paid off sooner.
- Required monthly expenses may fall earlier.
- Some people feel more comfortable carrying less debt.
Possible drawbacks
- The money becomes home equity, which is the part of your home you own, instead of staying in an account you can access more easily.
- Accessing that home equity may require selling the home or qualifying for another loan.
- Extra payments may leave less cash available for emergencies or other goals.
- Some loans may have special rules or prepayment penalties.
Investing the same amount
Investing gives each monthly contribution time to grow. It may create a higher ending value, especially over a long period, but the result depends on returns that cannot be known in advance.
Possible benefits
- The money normally remains easier to access than home equity.
- Investments may earn more than the mortgage rate.
- Investing can help you build money outside of your home.
Possible drawbacks
- Investment returns are uncertain.
- The account can lose value, especially during market downturns.
- Taxes and investment fees may reduce the result.
Behavior also matters
Math is only part of the decision. A strategy you can follow for many years may be more useful than one that looks slightly better only on a spreadsheet.
Key takeaway
Paying extra on a fixed-rate mortgage means giving up easier access to some money and the chance for investment growth in exchange for lower interest costs and an earlier payoff. Investing keeps the money more accessible and may build more wealth, but the return is uncertain.
Helpful terms
- Principal
- The amount of the mortgage you still owe.
- Home equity
- The part of your home’s value that you own, after subtracting what you still owe.
Sources: CFPB on mortgage principal payments, CFPB on prepayment penalties, and Investor.gov definition of investment risk.