Invest or pay down the mortgage
The same extra money, two ways: on the principal, or invested. Slide the expected return to see where the two paths meet.
How this tool works
Both paths spend the same money each month: the mortgage payment plus the extra.
- Pay down: the extra (and any lump sum) goes on the principal. The loan ends sooner, and from then on the whole payment and the extra are invested for the rest of the period.
- Invest: the extra is invested at the return you set, and the loan is paid as scheduled. If the loan ends inside the period, its payment is invested from then on too.
Net worth on each path is the investments less the mortgage balance; the home itself is the same on both. Investments grow each month at the return you set, less the share of gains you set aside for taxes.
Where the paths meet. Every dollar on the principal saves interest at the mortgage rate, with certainty. With no tax assumption the two paths end even at a return equal to the mortgage rate. With a tax assumption the investments have to earn more, so the meeting point is higher. Investment returns are never certain and can be negative.
Money paid on the principal stays in the home. Reaching it later takes a sale, a cash-out refinance or a home equity loan or line of credit. Mortgage interest deductions and inflation are not counted. This is arithmetic, not tax or investment advice.
See also the extra payment planner and how much of your home you own.
Common questions
Why is the break-even return the mortgage rate?
A dollar on the principal stops interest at the mortgage rate, every month, for as long as the loan would have run. An investment has to earn that much, after any taxes, to keep pace. When it earns exactly that, both paths end with the same net worth.
Does the tool count taxes?
Only as one assumption you set: the share of each year's investment gains lost to tax. It does not count the mortgage interest deduction or the rules of any particular account.
Can I get money back out after paying down?
Money paid on the principal stays in the home. Reaching it later takes a sale, a cash-out refinance or a home equity loan or line of credit, each with its own costs and approval.
See it with your own numbers
It starts with a conversation. Daniel builds your Mortgage Plan from it: every loan option that fits, side by side.