Pay off the mortgage or invest
The same monthly budget down two paths. One sends the extra to the lender, one sends it to the market. Compared on terminal net worth after tax.
Worked example — At the expected return, after 27 years, paying the mortgage down finishes ahead by: $2,422. $380,000 balance at 6%, $500/mo extra, 7% expected return. Investing wins in 35% of 4,000 simulated paths
Close call (current default): Already sits in the page's own stated toss-up zone between 4% and 6%.
Advanced options 1
Its mean finish is $401,292 and its median is $331,892, a gap created entirely by the right tail. Quoting the mean and calling it the expected outcome is the standard error here. Returns are drawn from a lognormal with your volatility, seeded so this figure is reproducible.
Should I pay off my mortgage early or invest the extra?
Our stated position: below roughly 4% mortgage rate, invest. Above roughly 6%, prepay. In between, the two are close enough that liquidity, not arithmetic, should decide. On the default scenario, a 6% mortgage against a 7% expected return sits in that middle zone, and paying down dollars are illiquid until a refinance or a sale.
What return do I need to beat paying off my mortgage?
Bisecting for the after-tax return that ties the two paths lands at 6.00% after tax, which grosses up to 7.06% before tax at your 15% tax rate. That pre-tax figure, not the mortgage rate on its own, is the number to compare an expected return against.
Break-even after-tax return by mortgage rate
Held at the default 15% tax rate and $500/mo extra payment.
| Mortgage rate | After-tax return to tie | Pre-tax return to tie |
|---|---|---|
| 4% | 4.00% | 4.71% |
| 5% | 5.00% | 5.88% |
| 6% | 6.00% | 7.06% |
| 7% | 7.00% | 8.24% |
| 8% | 8.00% | 9.41% |
What we think
Paying down the mortgage is a risk-free after-tax return equal to the rate, and comparing that to an expected equity return without adjusting for either tax or variance is comparing two different kinds of number. Above roughly six percent, in a taxable account, prepaying wins on the honest comparison for most people and it wins without requiring anything to go right. Below four, invest and do not think about it again. In between, the deciding factor is not arithmetic: dollars put into a house cannot be taken back out without a refinance or a sale, and an emergency does not accept home equity. Fill the emergency fund and the matched retirement contributions first. Both of those beat both of these.
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Mortgage calculatorCalculatorThe amortization this page runs the extra payment through, shown in full.Open nextOther questions
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What Pro adds here
Tax-advantaged account handling, sequence-of-returns paths with serial correlation, and a lump-sum version of this comparison are Pro features. The launch list sends one email at launch.