Pay Off Mortgage or Invest Calculator

It is the gross investment return at which overpaying the mortgage and investing the surplus end with exactly the same net worth at the end of the remaining term. With capital gains tax and interest relief at zero, it equals the mortgage rate converted to effective annual terms, because paying down a loan at a given rate is financially identical to earning that rate. Tax shifts it up: at a 26% capital gains rate, a 3.5% mortgage needs roughly a 4.8% gross return before investing pulls ahead. The break-even is a threshold for expectations, not a forecast: earning more than it is likely over some horizons and not others, and never guaranteed.

Yes, in the precise sense that the interest you avoid is certain. Every unit of principal you repay stops accruing interest at your mortgage rate, whatever markets do, which makes prepayment one of the few guaranteed returns available to a household. Practitioner research, such as PWL Capital's work on mortgage debt and asset allocation, frames the choice exactly this way: carrying a mortgage while investing is economically similar to investing with borrowed money, and the higher expected return of stocks is compensation for genuine risk, not a free lunch. Comparing a guaranteed rate with an expected one is the real content of this decision.

Two ways, pulling in opposite directions. Capital gains tax reduces what investing actually keeps, so the gross break-even return rises; this calculator models it as a flat haircut on the return, r_net = r_gross x (1 - tax), a simplification that ignores deferral and account wrappers. Mortgage interest relief works the other way: where a country credits back part of the interest paid, carrying the mortgage becomes cheaper, and the path that keeps the balance high collects more relief, so the break-even falls. Amromin, Huang, and Sialm (2007) showed that these tax details are large enough to flip the answer for many households, particularly where tax-advantaged retirement accounts are available. Check your own country's rules for both inputs.

Money paid into the mortgage is illiquid: getting it back means borrowing against the property or selling it, both slow and costly. An investment account can usually be sold within days. That difference matters when income drops or an emergency arrives, and it is a genuine argument for investing that the final net worth figures do not capture. It cuts the other way too: a mortgage overpayment cannot be panic-sold in a downturn, which is a form of built-in discipline. Weigh the numbers this calculator gives alongside how much you value having the money reachable.

Each month, the chosen percentage of the interest actually paid that month is credited back to the path and joins the money it deploys: extra repayment while the loan is alive on the overpay path, extra investment on the invest path. Because the invest path carries the full balance for longer, it pays more interest and therefore receives more relief, which is exactly the asymmetry that makes relief favor keeping the mortgage. The default of 0 fits countries with no relief; where deductions or credits on mortgage interest exist, set the share your own rules give back.

It compares steady, average returns: there is no volatility, no sequence risk, and no chance of a bad decade, which flatters the investing path relative to lived experience. It also leaves out prepayment penalties or caps on overpayments, changes in the house value (identical on both paths, so it cancels out), inflation (both paths are in nominal money, so the comparison stays fair), and investment costs, which you should net out of the expected return you enter. Tax treatment is simplified to a flat rate on gains. Where these details bind, particularly prepayment penalties, check your loan contract before acting.