A sure return against an expected one.

The facts, in one place.

Six quotable sentences on paying the mortgage against investing.

1. Every extra dollar sent to a mortgage earns exactly the mortgage rate, guaranteed, and the saving is not taxed when the standard deduction is taken. Most households take it: for 2026 it is $32,200 on a joint return and $16,100 for a single filer, and the interest is deducted only above it.
2. The same dollar invested earns whatever the market gives, which may be more and may be less, and is not guaranteed in any year. The comparison is a sure return at the mortgage rate against an expected return that carries risk.
3. Example: $300,000 at 6% with 25 years left, and $500 a month extra. Sent to the mortgage, the extra clears it 8 years and 11 months early and saves about $112,299 of interest; with the freed payment then invested at 7%, the position at the original end date is about $363,745. Invested from the start at 7% instead, it is about $405,036.
4. When the expected return equals the mortgage rate, the two paths end equal to the cent, because a dollar of debt retired and a dollar invested compound at the same rate. The whole answer is the gap between the two rates and how sure you are of it.
5. The two paths differ in ways the arithmetic does not price. Money sent to the mortgage cannot be taken back without selling or borrowing; money invested can be sold. And the payoff is certain while the investment is not, which is worth something to most people even when the expected return is higher.
6. Deducting the interest lowers the sure return: a 6% mortgage deducted at 24% costs 4.56% after tax. That applies only to a household that itemizes, and only to the interest above the standard deduction.

By the expected return.

How the answer moves with the one assumption that decides it.

How the comparison works.

A dollar sent to a mortgage retires a dollar of debt that was compounding at the mortgage rate, so it earns that rate, for certain, with no tax on the saving unless the interest was being deducted. A dollar invested earns whatever the investment returns. The only fair comparison sends the same cash down both paths every month: on the first, the extra goes to the mortgage until it is gone and then the whole payment is invested for the months that remain; on the second, the extra is invested from the start while the mortgage runs its course. The positions at the original end date, investments less any balance still owed, are then compared, and so are the positions at the month the first path clears the loan.

Built that way, the two paths end equal to the cent when the return equals the mortgage rate, which is the check on the arithmetic and the whole of the rule: the answer is the gap between the two rates and how sure you are of it. The interest deduction, where a household itemizes, lowers the sure return to the rate times one less the tax rate; the tool applies it by investing the tax saved on each month's interest, on both paths. What the arithmetic cannot price is that the payoff is certain and locked in while the investment is neither, and that is the part a person weighs.

Methodology.

1. Inputs. The balance, the interest rate, the years left, the extra per month, the expected return, and whether the interest is deducted and at what rate.
2. The schedule. The level monthly payment for the balance, rate, and months; both paths pay it.
3. Extra to the mortgage. Each month interest accrues, the payment plus the extra is applied, and once the balance is cleared (any remainder of that month's cash invested) the whole payment plus the extra is invested at the monthly return until the original end date.
4. Extra invested. Each month the scheduled payment is applied and the extra is invested at the monthly return; the balance follows the schedule.
5. The deduction. When elected, the tax rate times each month's interest is credited to the investment on both paths; the after-tax mortgage rate is reported.
6. The comparison. Months and interest saved; investments less balance at the original end date on each path; the same at the early payoff month; and principal paid down plus investments drawn as two lines.
7. Validation. The scheduled payment on a 30-year $300,000 mortgage at 6 percent ($1,798.65); no extra gives no saving and no difference; a return equal to the rate ties to the cent; a return above the rate favors investing and below it the payoff; and the after-tax rate under the deduction. A transcription error fails the build.
8. Not modeled. Tax on the investment's growth, mortgage insurance, prepayment penalties, refinancing, the emergency fund, variable rates, and the risk that the return is not the average. Hypothetical throughout. Educational, not advice.

Revision history.

The assumption tools' history.

September 7, 2026

Added should you buy points (the bought-down loan against the plain one on the same principal and term, so the position is the interest saved less the cost of the points; true break-even as the first month at or above zero beside the simple rule; the horizon verdict; the return the points earn to the horizon as the monthly-compounded rate at which their cost equals the present value of the saving plus the lower balance owed, by bisection; the largest points count that pays off within the horizon; and the seller-paid case set against the same dollars off the price).

September 7, 2026

Added two mortgage assumption tools: refinance break-even (the simple rule, closing costs over the monthly saving, beside the month-by-month count of interest paid on each loan, where total cost is the balance plus the closing costs plus the interest so far, so the new loan's position is the interest saved less the costs; the reset-the-clock effect flagged when a longer term catches up), and 15-year or 30-year mortgage (the same cash on both paths, the 15-year payment invested after the loan is gone against the difference invested for thirty years, compared at year 15, year 30, and a chosen horizon, with the break-even return by bisection).

September 7, 2026

Added three assumption tools: Roth or traditional 401(k) (the same take-home cost grown at one return and taxed at each end, so the answer turns on the two rates; the plan limit from the annual record), pay off the mortgage or invest (two month-by-month paths, the extra to the mortgage and then the freed payment invested, against the extra invested throughout, with the optional interest deduction), and how much life insurance (the present value of the income to replace as a growing annuity, plus debts, final expenses, and education, less existing coverage and savings, beside the ten-times-income rule).

September 6, 2026

Added two assumption tools: sell or keep the house (carrying costs and appreciation against rent and the return on freed equity, with the home-sale exclusion), and the long-term care cost projection (today's rate at care inflation to the start year, summed over the years of care, with the set-aside today).

September 4, 2026

First release of the longevity projection (year-by-year, spending and outside income indexed to inflation, a fixed return on the remainder, with the sustainable-spending solver) and the pension-versus-lump-sum comparison (the lump sum invested and paying the pension, with the break-even return solver).

Canonical address: https://consideratecapital.com/tools/pay-off-mortgage-or-invest