How the calculator works
The Mortgage Payoff vs. Invest Calculator compares two uses of extra cash flow:
- Pay extra toward the mortgage
- Invest the same extra amount instead
The goal is to estimate which scenario produces higher long-term net worth under the selected assumptions.
Main inputs
The calculator may use:
- mortgage balance
- mortgage interest rate
- remaining mortgage term
- monthly mortgage payment
- extra monthly payment
- expected investment return
- investment fees
- tax assumptions
- time horizon
- inflation, if supported
- home value, if included
- property appreciation, if included
Mortgage payment formula
A standard fixed-rate mortgage payment is calculated with:
Monthly Payment = P × [i(1 + i)^n] / [(1 + i)^n - 1]
Where:
P = loan principal
i = monthly interest rate
n = number of monthly payments
The monthly interest rate is:
i = Annual Mortgage Rate / 12
Mortgage interest calculation
Each month:
Monthly Interest = Remaining Balance × Monthly Interest Rate
Principal Paid = Monthly Payment - Monthly Interest
New Balance = Previous Balance - Principal Paid - Extra Payment
If extra payments are made, the mortgage balance falls faster.
Payoff scenario
In the payoff scenario, the extra cash flow is applied to the mortgage.
This can reduce:
- remaining balance
- total interest paid
- time until mortgage payoff
The benefit of paying down mortgage debt is often similar to earning a guaranteed return equal to the mortgage interest rate, before considering tax effects and liquidity.
Invest scenario
In the invest scenario, the extra cash flow is invested instead of being paid toward the mortgage.
Investment growth is modeled using recurring contributions:
Future Value of Contributions = Contribution × [((1 + r)^n - 1) / r]
Where:
Contribution = monthly amount invested
r = monthly investment return
n = number of months
The monthly investment return is:
Monthly Return = (1 + Annual Return)^(1 / 12) - 1
Net worth comparison
The calculator compares estimated net worth between the two paths.
Simplified:
Payoff Path Net Worth = Home Equity + Investment Balance
Invest Path Net Worth = Home Equity + Investment Balance
The difference is:
Difference = Invest Path Net Worth - Payoff Path Net Worth
If the difference is positive, the invest path is ahead.
If the difference is negative, the payoff path is ahead.
Interest saved
Interest saved is calculated by comparing total interest paid between the regular mortgage schedule and the extra-payment schedule.
Interest Saved = Interest Without Extra Payments - Interest With Extra Payments
Example calculation
Example assumptions:
Mortgage balance: $300,000
Mortgage rate: 4%
Remaining term: 25 years
Extra monthly amount: $500
Expected investment return: 7%
Time horizon: 25 years
The calculator compares:
Scenario A: $500/month goes toward extra mortgage payments
Scenario B: $500/month is invested
The payoff scenario may reduce mortgage interest and shorten the loan.
The invest scenario may produce a larger portfolio if investment returns are higher than the mortgage rate, but that return is not guaranteed.
Important tradeoffs
This calculator is not only about the highest final number.
Paying off a mortgage can offer:
- lower debt
- lower required monthly expenses
- psychological comfort
- guaranteed interest savings
- reduced financial pressure
Investing can offer:
- higher expected return
- better liquidity
- more diversification
- higher long-term upside
- more flexibility
The better choice depends on risk tolerance, interest rate, investment return, taxes, liquidity needs, and personal preference.
What this calculator does not account for
This calculator does not fully model:
- refinancing
- variable interest rates
- early repayment penalties
- mortgage tax deductions
- investment tax rules
- property taxes
- insurance
- maintenance
- changes in home value
- market volatility
- emergency liquidity needs
- behavioral risk
Best way to use this calculator
Use conservative investment assumptions first.
Then test:
- lower return assumptions
- higher mortgage rates
- different extra payment amounts
- shorter and longer time horizons
If the result only works with optimistic return assumptions, it may not be a strong planning case.
Changelog
April 2026
Initial public methodology page created.